A Schedule C tax form is used, along with your personal 1040 filing, to report income and expenses to the IRS from business related to self-employment which you own as a sole proprietor or single-member LLC. Think of side-hustles or gigs you do on the side, where you make a reasonable amount of income.
A Schedule C should only be used if you are running a business as a sole proprietorship. If the business is setup as a partnership, corporation, or multi-member LLC, a different tax form will be required.
The best way to fill out a Schedule C is to complete it when filing your personal tax return using leading tax software packages like those from TurboTax or H&R Block which specifically cater for small business filings.
Also note you may need to fill in multiple Schedule C’s if you have multiple side gigs or side hustles.
Here are some key items to keep in mind when filling in a Schedule C and to ensure that your side-income does not raise audit red-flags with the IRS.
- Keep accurate and detailed records of all income and expenses throughout the year. This will make it much easier to fill out Schedule C when tax time comes around. You can do this on excel or via software like QuickBooks.
- Make sure to use the correct codes for income and expenses. The IRS provides a list of codes that should be used when reporting different types of income and expenses on a Schedule C form. Online tax filing software can help ensure get this right when filing.
- Be sure to take all of the deductions that you are entitled to. This includes things like home office expenses, vehicle expenses, and supplies. This can reduce your overall taxable income.
- While it may be tempting to deduct many things, be aware of the difference between personal and business expenses (see the IRS approved list). Only business expenses can be deducted on Schedule C.
- Use software or a tax professional to help you if you’re not comfortable filling out the form. This will help ensure that everything is done correctly and that you don’t miss any important deductions.
- File your Schedule C on time. Late filing can lead to penalties and interest, as is the case with personal taxes.
- Keep a copy of your Schedule C, supporting documentation and all other tax forms for at least 3 years from the date you filed the return or 2 years from the date you paid the tax, whichever is later.
- Talk to a tax professional if this is the first time doing a Schedule C or if you have considerable income to report. It may make more sense to properly incorporate your business and claim a larger tax deduction in this case.