What is Schedule C On 1099? Here’s Everything You Need to Know

7

Min Read

David Maina

Freelancers are often uncertain of what they need to do with their taxes, and one form that can be particularly confusing is Schedule C. As an independent contractor, you're required by the IRS to fill out the form each year in order to report your business income.

This blog post will be exploring what a Schedule C IRS form is, why 1099 workers need to file it, and how to fill out the form. Let's get started.

Note: If you would like to automatically record all of your business expenses or losses for Schedule C, try Bonsai Tax. Our software program scans your bank/credit card statements, discovers tax write-offs, and organizes your receipts. Users typically save $5,600 from their taxes with our software. Claim your 14-day free trial today.

What is an IRS Schedule C form?

A Schedule C form is a tax document filed by independent workers in order to report their business earnings. It's important to note that this form is only necessary for people who have had income reported on 1099 forms, meaning they are considered contract employees rather than full employees of the company or organization contracting them.

Schedule C forms are used to report business profit from self-employment. When filing this form with the IRS you'll need to include any contract earnings you had for the year along with information about deductions related to your business which allowed you to decrease your taxable income by a certain percentage.

Who Should File a Schedule C?

Two types of businesses have to file a Schedule C form: single proprietorships and single-member limited liability companies (LLCs). Note that Schedule C is not meant for C or S corporations.

  • A sole proprietorship is a business that is run by a single individual and doesn't have a legal status as a separate entity.
  • Single-member LLC refers to a corporation run by just one person. In most situations, there isn't much of a difference between the owner and the LLC when it comes to income tax matters; the company's income and gains are immediately reported on the owner's personal tax return.

What You Need to File Schedule C: Profit or Loss From Business

Here are a few of the things you'll need before filling out the form:

  • Your balance sheet as of December 31
  • Your income statement as of December 31
  • Your Social Security Number
  • Receipts for any purchases you made for your business
  • Mileage records
  • List of tax deductions you want to write off
  • An inventory count if your business sells products
  • List of your meal expenses

You'll use the entries on Schedule C to calculate your business’s net profit or loss. This figure is then transferred to Form 1040; it helps in determining your overall tax liability for the year. Usually, a sole proprietor only has to file one tax return for his or her personal and business income taxes.

Realize that if you work in certain industries, you may be required to fill out other forms in addition to Schedule C.

If you're a landlord, for example, you may need to file Schedule E to report rental income that is not subject to self-employment taxes. And if you're a sole proprietor with a home office, you'll have to complete a Form 8829 to claim the home office deduction.

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Do You Need to File More Than One Schedule C?

Here are a few things you need to keep in mind when handling a Schedule C:

  • If you run multiple businesses, you'll need to prepare a Schedule C for each business. For example, if you drive for Uber as a 1099 side gig and you sell dog-walking services on Rover, you'll need to fill out two different Schedule C forms.
  • If you happen to have more than one trade or business, but you operate them through the same entity (for example, an LLC), then you would include all of your income and expenses from both businesses on the same schedule.
  • If your spouse works in the same line of business as you, they must submit their own Schedule C if their income and deductions are not linked to yours. You may be eligible for qualified joint venture (QJV) treatment and split your income and expenses into two Schedules C with a combined tax return if you both run an unincorporated business together.

Is There a Minimum Self-Employment Income For Filing Schedule C?

There is no minimum income associated with filing a Schedule C form. Regardless of how much you've made or lost from your business, you need to report all your earnings and expenses on Schedule C.

That said, you need to pay self-employment tax if you earned at least $400 from self-employment income during the year. Social Security and Medicare taxes are meant for individuals who work as sole proprietors. If you meet the $400 threshold, the IRS requires you to complete a Schedule SE.

If you made less than $400 from your side business, you're exempted from paying self-employed tax on those earnings.

Try our free tax calculator to estimate how much you'll owe.

What Kinds of Expenses Can You Deduct on Schedule C: Profit or Loss From Business?

A lot of the expenses incurred by business owners are tax-deductible. As a rule, you can deduct all "ordinary and necessary" costs that are related to your business.

To the IRS, an ordinary expense refers to costs that are "common or accepted” in your trade or business. Necessary expenses are those that "are helpful and appropriate” for your trade or business.

Keep in mind that this is a broad definition that allows for a lot of 1099 write-offs.

Typical Deductible Expenses

Below are some examples of common expenses you can deduct.

  • Accounting fees
  • Advertising costs
  • Auto mileage reimbursement
  • Insurance premiums
  • Business meals, entertainment, and travel expenses related to business activities
  • Office supplies
  • Rent
  • Repairs/maintenance
  • Salaries and wages
  • Supplies, equipment, and tools for the business
  • Travel costs from business activities
  • Depreciation

You can include any of these tax write-offs when you're completing your Schedule C form. You can visit this page to read more on business tax deductions.

That said, documenting your expenses is crucial when you're claiming business tax deductions. Your records must show what you're deducting and how the business spent the money. The IRS can audit you at any time, and you need to arm yourself with proper documentation. That's why you'll need to maintain records of any business receipts and invoices you receive.

What is the Schedule C-EZ IRS Form?

Schedule C-EZ is a short form of Schedule C. Not everyone can report their business income using this form, though. You can use it if you meet all of the following conditions:

  • You use the cash method of accounting in your business
  • Your business expenses accounted to less than $5,000
  • Your business did not have an inventory or stock at any time during the year
  • You did not have a net loss from your business activities (you had more income than expenses)
  • You did not have any employees at any time during the year
  • All your income came from only one business
  • You're not looking to claim a home-office deduction

Keep in mind that the Schedule C-EZ is no longer available, but you can use it to file your returns for tax years before 2019.

What's the Difference Between a 1099 Form and Schedule C?

A form 1099 is a tax form that companies use to report payments they've made to independent contractors, other than regular wages or salaries. If you get money from a company and do not work for them full time, then you are considered a freelancer or contractor. The company reports the fees it pays you on the 1099 form and files it with the government. They also give you a copy so that you can do your taxes using that information.

Final Thoughts

Filling out the Schedule C form can seem like a daunting task. The endless lines, letters, and numbers can make the form appear a lot more challenging to file. But once you get a hang of things, you’ll be able to complete the form without much hassle. Hopefully, this blog post will help you when tax season arrives.

And if you’re an independent contractor looking for more tax help, you can sign up for a Bonsai Tax account today. With Bonsai Tax, you’ll be able to maximize your tax deductions, estimate your quarterly taxes, and track your expenses seamlessly. Try our software today for a 14-day free trial here.

Note: The team at Bonsai always recommends you get tax advice from a professional or CPA. At the end of the tax year, if you have any questions about how to file taxes, contact an expert for tax advice for your Federal tax return.

David Maina
David is an experienced B2B financial copywriter, specializing in content related to accounting, financial planning, and small businesses. Over the years, he has helped fintech brands win more traffic and skyrocket conversions with engaging, long-form content. A nerdy interest in numbers, and passion for creative writing drives him to create financial content that's truly unique. You can reach him at financeandinsurancewriter.com

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