How do I Report Self-Employment Income on Schedule C?
To report self-employment income, you must use Schedule C (Form 1040), which is titled "Profit or Loss from Business." This form is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor.
When to Use Schedule C
- Use Schedule C if your primary purpose for engaging in an activity is for income or profit, and you are involved in the activity with continuity and regularity.
- Activities that are sporadic, not-for-profit, or hobbies do not qualify as businesses and should not be reported on Schedule C.
- Report income from statutory employees (as indicated on Form W-2, box 13) on Schedule C. However, you do not owe self-employment tax on this income since social security and Medicare taxes were already withheld.
- Also report income from certain qualified joint ventures and amounts shown on Forms 1099-MISC, 1099-NEC, and 1099-K.
How to Complete Schedule C
- Line 1: Enter your gross business income. This includes payments received for services, sales of goods, and other business-related income.
- Line 2–28: List all business expenses such as cost of goods sold, advertising, rent, utilities, and employee wages. These deductions reduce your net profit.
- Line 31: Calculate your net profit or loss by subtracting total expenses (line 30) from gross income (line 29). If your gross income exceeds expenses, you have a net profit.
- Line 32: If you have a net profit, this amount is considered earned income and may qualify you for the Earned Income Credit (EIC). You must also report this amount on Schedule SE (Form 1040) to pay self-employment tax unless you are a statutory employee.
Special Considerations
- If you are a statutory employee, report your income on Schedule C but do not include it on Schedule SE (Form 1040) for self-employment tax purposes.
- If you have both self-employment income and statutory employee income, you must file two separate Schedule C forms. You cannot combine these amounts on one form.
- If you use your home for business purposes, you may be eligible to deduct home office expenses. However, you must first determine the portion of gross income attributable to business use of your home.
- If you are married and filing jointly, you may choose to treat the business as a sole proprietorship and report all income on one spouse’s Schedule C. Alternatively, you can split the business income between spouses by completing separate Schedule C forms.
Additional Reporting Requirements
- Include your net profit or loss from Schedule C on Schedule 1 (Form 1040), line 3.
- If you have self-employment income (not statutory employee income), file Schedule SE (Form 1040) to calculate and pay self-employment tax.
- If your business involves farming, use Schedule F (Form 1040) instead of Schedule C.
Source:
Schedule C (Form 1040) - Profit or Loss from Business
Disclaimer: Always verify information with the official Federal or State Department of Revenue Forms and Instructions before filing your tax return.