When you run your own business, you must use Schedule C (Form 1040) to report profit or loss to the Internal Revenue Service if you are self-employed as a sole proprietor. A sole proprietorship is a business that’s not organized as a partnership or corporation. Some self-employed individuals may use a short version called Schedule C-EZ. Schedule C-EZ can be used if you make a profit, have no employees or inventory, don’t claim more than $5,000 in business expenses and don’t claim a home office deduction.
Filing Schedule C
Schedule C or C-EZ is attached to your individual tax return when you file your taxes. The net profit or loss is entered on line 12 of Form 1040. To complete Schedule C, you need records of the income your business received and the cost of goods sold. You must list your business expenses; these include things like rent, utilities, insurance, taxes and depreciation. Travel and vehicle operating costs are also business expenses, as are wages and benefits paid to employees. Most sole proprietors also need to complete Schedule SE, the self-employment tax form, to calculate Social Security and Medicare taxes on the net business earnings. Schedule SE is attached to your tax return along with Schedule C or C-EZ.