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.
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.
Documents Needed 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 Documents that can prove the legitimacy of business expense deductions you took, including travel and driving expenses Home business expenses
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 is true whether you have a profit or a loss, as long as all of your investment is at risk in the event of a loss. This income is included with all other income sources to determine your total adjusted gross income tax liability for that year’s taxes.
If You Own Multiple Businesses
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 Married Business Owners
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. You may want to 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. You’ll need to file Form 1040X to amend your tax return. You only need to file Form 1040X if you have already filed the incorrect Schedule C. Otherwise, you can simply fix your error and submit an ordinary Schedule C to the IRS.
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.
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.
