What Is a Schedule C and Who Should File Them?
If you’re a small business owner or independent contractor filing taxes this year – this one’s for you! There are a lot of fundamental tax forms businesses need to complete each year, and a Schedule C may be one of them.
There are a couple of differentiating factors in determining whether or not you need to complete this form for your taxes this year. In fact, depending on how many businesses you operate, you may need to complete multiple Schedule C forms.
So, what is a schedule C exactly, and who should file them? Great questions! This form can prove to be a little confusing without the right expertise and professional advisement, so let me help you figure out what you’ll need to succeed.
What is a Schedule C?
A Schedule C, which is a part of the Form 1040, is a calculation tool used by the IRS. These calculations determine the amount of money you’ve earned over the past year from your business, which is also called your gross income. It determines how much gross income is taxable after deductions and credits.
By way of this form’s calculation techniques, a Schedule C determines the amount of taxes you may owe or, possibly, the amount of refund you’ll get.
If you find yourself muttering angrily under your breath, “But wait, what is a Schedule C again?!?” - don’t worry. I’ve got some helpful tools that will aid you in understanding your Schedule C journey.
Who files a Schedule C?
Ultimately, Sole Proprietor business entities must complete a Schedule C each year. This also includes single-member LLCs that have chosen to file as a Sole Proprietor because it may benefit them financially when filing taxes.
Many small business owners, independent contractors, freelancers, and self-employed individuals will likely fall under this Sole Proprietorship umbrella. If you’re still a bit mystified as to whether or not you should file a Schedule C this year, ask yourself the following questions:
• Do you have a boss that you answer to? If so, do they take a chunk of change out of your salary for taxes?
• Is the reason for your business a hobby instead of being your primary source of income?
• Have you elected to be taxed as a corporation, S Corporation, or partnership?
If you answered no to any of these, you’re most likely a Sole Proprietor. If you’re still having doubts, don’t hesitate to reach out to your tax professional for more clarification.
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What You’ll Need to File a Schedule C
If you choose to do this on your own, it is crucial to collect all the things you will need to complete your Schedule C form before you start filling it out. You absolutely, unequivocally DO NOT want to mess this up!
Do yourself a favor and print out the IRS instructions on how to go about filling out your Schedule C form. If you are fluent in the language of the IRS, you can find all your answers right there!
Grab your Social Security number and/or your Employer Identification number. If you’re a small business owner or independent contractor, you may need to get an EIN. These help the IRS identify your business entity and which returns taxpayers will submit. Check in with your accountant to see if it would be necessary for you to set up an EIN.
Get your income statement for the last year, balance sheets, statements, and receipts for any business purchases.
If you sell products, make sure to have your inventory count available to you.
If you commute or travel for business, make sure you have your mileage records available to you as well.
Common Kerfuffles
So now that you’ve got a basic understanding of exactly what is a schedule C form and who primarily files them, let’s discuss a couple common misconceptions that a small business owner or independent contractor might encounter.
You May Have to File Multiple Schedule C Forms
If you are self-employed and have multiple businesses, you will have to file more than one Schedule C form. So, if you’re driving for Uber, selling goods in your Etsy shop, and walking dogs with Rover intermittently, you’ll have to file a separate Schedule C form for each.
Your Business May Not Qualify as a Hobby
As per IRS guidelines, if your business makes $400 or more in a tax year, you are most likely considered a business, not a hobby. That means that you will have to file taxes as a functioning, for-profit entity, so you will need to file a Schedule C.
It is important to note that if you do file incorrectly in this area, you can incur some serious penalties and even an audit, so it is important you do your due diligence to avoid being penalized.
Conclusion
You’ve already got enough on your plate when it comes to being a small business owner or independent contractor, and doing your taxes shouldn’t be added to your growing to-do list.
So, if you’re still confused when determining what is a Schedule C and who should file them, please reach out!
