What Do I Need to Know to File Schedule C?
Are you using Schedule C to file your business taxes? Small business owners who are filing business taxes as a sole proprietorship or single-member LLC must file using Schedule C, Profit or Loss from Business. Learn about Schedule C for the current tax year, how to prepare this form, and how and where to file it.
What Is Schedule C?
Schedule C is the business tax return used by sole proprietors and single-member LLCs. It's used to report net income for a small business. This income is included in the owner's income tax return along with other income.
Changes in Schedule C
The 2017 Tax Cuts and Jobs Act created some benefits and drawbacks to businesses. The legislation dropped the corporate tax rate to 21% and created the Qualified Business Income deduction for small businesses, but decreased the interest expense deduction as well as meals and entertainment deductions, among other changes.
Employer ID for single-member LLC. The IRS changed the employer ID (EIN) requirement for Schedule C. Businesses set up as single-member LLCs must use the EIN issued to the LLC, not the EIN issued to you in your name as a sole proprietor.
Mileage rate. On line 9, use the standard IRS business mileage rate for 2020 (57.5 cents per mile) for business driving to calculate business mileage deductions. The mileage rate for the 2021 tax year will be 56 cents per mile.
Schedule C-EZ. Beginning with the 2019 tax year, you can no longer use Schedule C-EZ to report your small business information on your tax return and must use Schedule C instead.
Who Must File Schedule C
If you operate your business as a sole proprietorship (that is, you have not designated a legal business entity such as an LLC, corporation, or partnership), you must complete a Schedule C. If you operate your business as a single-member limited liability company (LLC), you will also use Schedule C for your business income taxes.
Get Information for Schedule C
Before you begin to work on your Schedule C, you will need to gather certain end-of-year business information. You will need:
- A profit and loss statement (sometimes called an income statement) showing the entire year's income and expenses
- A balance sheet for the year ending December 31
- Statements about assets showing purchase of assets during the year
- Information on inventory to prepare a cost of goods sold calculation if your business sells products
- Details on business expenses for travel and driving
- Home business expenses
Using step-by-step instructions to complete Schedule C will help you ensure you don't leave anything out.
Include Schedule C on Your Tax Return
The information about your net business income from line 31 of your Schedule C is added to your personal tax return on Schedule 1, line 3. This income is included with all other income sources to determine your total adjusted gross income tax liability for that year's taxes.
A Schedule C for Each Business You Own
Schedule C is used to report the net income from one business. So if you have several small businesses that use Schedule C, you must complete this form for each business. Then, net income totals from all Schedule Cs are added together on Schedule 1 of your personal tax return.
Schedule C for Husband-Wife Businesses
If you and your spouse own a business as community property (in a community property state), you are a partnership. But you may be able to elect to be taxed as a Qualified Joint Venture (QJV). There are specific qualifications, and two-spouse LLCs can't generally qualify as a QJV. If you meet the criteria, you divide the income and expenses between the spouses, based on their share of the business. Then file two Schedule C forms, one for each spouse. Check with your tax advisor before attempting to file your business taxes as a qualified joint venture.
How to Correct Errors on Schedule C
To correct an error in Schedule C, you will need to file a corrected Schedule C as part of your amended personal tax return, using form 1040X. Read more about how to file Form 1040X to amend your tax return.
Don't Forget Self-Employment Taxes
The net income information on Schedule C is used to determine the amount of self-employment tax you owe (for Social Security and Medicare taxes). Schedule SE is used to calculate the self-employment tax amount. Schedule SE is a complicated form (even the simple version), so you may want to get help from a tax professional.
Other Schedules You May Need to File
If you have other income (not personal income) or special deductions, you may need to file one or more of these schedules as part of your tax return, in addition to Schedule C:
- Schedule E to report rental real estate income and royalty income that's not subject to self-employment tax.
- Form 461 to report an excess business loss.
- Form 3800 to claim any of the general business credits.
- Form 4562 to claim depreciation and amortization, including Section 179 expenses.
Schedule C can be complicated, even for simple businesses, and you don't want to miss anything important. Get help from a tax professional or use business tax preparation software to prepare Schedule C along with your personal tax return.