Schedule C: Profit or Loss from Business

form 1040 schedule c

Citizens of the United States have to file Schedule C of Form 1040 to report income or loss from the business they operated, or a profession they practiced as a sole proprietor. Any act is qualified as a business if the person engages in the activity with regularity and continuity and the primary purpose of the person to engage in the activity is for income or to seek profit. 

Who should File Schedule C?

All sole proprietors should file Schedule C which is meant for reporting profit or loss from a business or sole proprietorship along with their tax amount. This is a detailed Form that has provisions to report income, expenses, the cost of the goods sold, etc. The net profit or loss should also be calculated and it has to be used on the personal income tax return Form of the proprietor. 

There is no minimum income requirement to file Schedule C. The business owner should report all income and expenses, regardless of how little they have earned. The minimum threshold to pay self-employment tax is $400. Those who earn less than $400 are not required to pay the tax. 

Very small businesses can also use Schedule C- EZ if their expenses are not greater than $5000 for the tax year if it has no employees and inventory and if they use the cash method of accounting. 

Can Schedule C be used to pay business taxes?

Yes, several businesses report their business taxes through Schedule C. This form is generally used by,

Sole Proprietors: They are sole owners of the business, who have not registered with the state in any other form such as a corporation or LLC. They report their business income and pay their business tax through this Form.

LLC with a single member: A single-member LLC business can use this Form to report their taxes if the business is not elected to pay tax as a corporation.

Family business: A husband and wife business, in the form of a partnership, can be considered as a joint venture and the tax can be paid using two Schedule C Forms, instead of other complex tax forms. 

The process of filing Form Schedule C:

The first step is to gather all information, concerning all sources of business income, including its allowances and returns. The next step is to calculate the gross profit of the business and the income. It should include the cost of goods sold as well. Business owners can report all their business expenses alphabetically on lines 8 to 27 and this includes depreciation, cost of insurance, expenses on employee benefits, legal and professional fees, travel expenses, interest paid on mortgages, etc. The final step is to calculate the net taxable income. If the business suffers a loss, then it is required to file Form 461, which pertains to Limitation on business losses. Finally, Schedule C should be added to Form 1040, to report tax returns. 

Bottom Line:

Anyone who is a sole proprietor of a business can file their tax returns through Schedule C. The expense of the business should be considered ordinary and necessary to be listed as a tax deduction on this schedule and the taxpayer can use Schedule C to report the net profit or loss of a business with the IRS for income tax.