Schedule C Basics: A Plain-English Walkthrough for Sole Proprietors and Side Businesses
Note: Some future links on this site may be affiliate links. We never claim hands-on testing; guides are researched from the public sources listed in each article.
How we wrote this: A plain-English walkthrough of the IRS "About Schedule C" page and the Instructions for Schedule C (Form 1040) for 2025 returns (the current edition when checked on October 29, 2026). Line numbers can change between years, so follow the instructions for the year you're filing. This is general information, not tax advice.
If you freelance, sell crafts, drive for an app or run any business by yourself without forming a corporation or partnership, the form where your business income and expenses live is Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). Here's how it's organized and what each part asks.
Who files Schedule C
The IRS says to use Schedule C to report income or loss from a business you operated, or a profession you practiced, as a sole proprietor. An activity counts as a business if:
- your primary purpose is income or profit, and
- you're involved with continuity and regularity.
If you're not sure your activity clears that bar, see our guide to hobby or business. A single-member LLC that hasn't elected corporate treatment also generally reports on Schedule C (see our guide to choosing a business structure).
The instructions also cover some special cases:
- More than one business: file a separate Schedule C for each.
- Statutory employees (a W-2 with box 13 "Statutory employee" checked) report that income and its expenses on Schedule C, but a separate Schedule C from any self-employment income. They don't owe self-employment tax on it, since Social Security and Medicare should have been withheld.
- Spouses who co-own a business may be able to elect to be a qualified joint venture instead of a partnership (details at IRS.gov/QJV).
The header: lines A through J
The top of the form describes the business. Highlights from the instructions:
| Line | What it asks |
|---|---|
| A | Your principal business or professional activity (the general field and the product or service) |
| B | A six-digit principal business code from the chart at the end of the instructions |
| E | The business address; skip it if you ran the business from the home address on your return |
| F | Your accounting method: cash, accrual or another permitted method (see our cash vs. accrual guide) |
| G | Whether you materially participated; "No" makes the activity passive, which can limit losses |
| H | Check if you started or acquired the business this year (or restarted it without a prior-year Schedule C) |
| I | Whether you made payments that required you to file Forms 1099 (see our 1099-NEC guide) |
Part I: Income
Line 1 is gross receipts. The instructions say to report all business income from all sources, and to check the Forms 1099 you received (1099-NEC, 1099-MISC and 1099-K are the common ones). If your 1099-NEC box 1 totals are more than what you report on line 1, attach a statement explaining the difference. See our Form 1099-K guide for payment-app and card income.
Other income lines: line 2 for returns and allowances (refunds and price reductions you gave customers), and line 6 for business income not reported elsewhere, such as bad debts you recovered, scrap sales, interest on receivables and state fuel tax refunds.
Part II: Expenses
Each common business expense has its own line. A selection from the instructions:
| Line | Expense | Related guide |
|---|---|---|
| 9 | Car and truck: actual expenses or the standard mileage rate | IRS mileage rate 2026 |
| 10 | Commissions and fees | |
| 11 | Contract labor (payments to people you don't treat as employees) | Employee or contractor? |
| 13 | Depreciation and Section 179 (from Form 4562) | Section 179 and bonus depreciation |
| 15 | Business insurance premiums | |
| 17 | Legal and professional services (accountants, attorneys) | |
| 22 | Supplies (generally as you use them) | De minimis safe harbor |
| 23 | Taxes and licenses | |
| 24a | Travel: lodging and transportation for overnight business travel away from your tax home | Business travel expenses |
| 24b | Deductible meals (a percentage of the actual cost or standard meal allowance) | Business meals |
| 25 | Utilities (business only) | |
| 26 | Wages, reduced by certain employment credits | Hiring your first employee |
| 27a / Part V | Other expenses you list individually | |
| 30 | Business use of your home (simplified method or Form 8829) | Home office deduction |
Your own health insurance as a self-employed person isn't deducted on Schedule C; it goes on Schedule 1 (see our self-employed health insurance guide).
If you claim car or truck expenses, you must also give information about the vehicle, in Part IV of Schedule C (for example, when you use the standard mileage rate) or on Form 4562.
Part III: Cost of goods sold
If you sell products, Part III figures the cost of goods sold from your inventory, purchases, labor and materials. The instructions note that a small business taxpayer can choose not to keep an inventory, but must still use a method of accounting for it that clearly reflects income.
The bottom line: line 31 and where it goes
Line 31 is your net profit or loss. For most individuals, the instructions say to:
- carry it to Schedule 1 (Form 1040), line 3, and
- include it on Schedule SE (Form 1040), line 2, to figure self-employment tax (see our self-employment tax guide). You can deduct one-half of the self-employment tax on Schedule 1.
A net profit is earned income and may qualify for the earned income credit, and it may also be qualified business income for the QBI deduction. If you have a loss, the at-risk rules (line 32 and Form 6198), the passive activity rules and the excess business loss limit (Form 461) may reduce what you can claim this year.
Because there's no withholding on business profit, most owners pay during the year; see our guide to estimated quarterly taxes. If you spot a mistake after filing, see amending a return with Form 1040-X.