IRS Schedule C (Profit or Loss from Business) is a schedule included with an individual taxpayer’s Form 1040 (US Individual Income Tax Return).

A sole proprietorship uses Schedule C to report income, expenses, and deductions related to their active trade or business. It is important to remember that a sole proprietorship includes an individual who is the sole owner of a single-member limited liability company (LLC) that is a disregarded entity.

Taxpayers should also remember that they do not report hobby income & expenses on Schedule C. Taxpayers report hobby income on Schedule 1 (Additional Income & Adjustments) and must follow the hobby loss rules.

What are the Relevant Sections of the Schedule C

Name of Proprietor and Business Information

  • Name of Individual Filing the Tax Return
  • Business Name
  • Business Employer Identification Number (EIN)
  • Business Address
  • Accounting Method (Cash, Accrual, or Other)
  • Did the individual materially participate in the business?
  • Was the business started or acquired during the current tax year?
  • Was the business required to file any Forms 1099?

Part I – Income:

  • Gross Receipts or Sales
  • Returns and Allowances
  • Cost of Goods Sold

Part II – Expenses:

The sole proprietorship may deduct all ordinary and necessary expenses in furtherance of the trade or business. The proprietor reports the expenses on the appropriate line item. If a category is not listed, the item can be separately stated in Part V.

Part III – Cost of Goods Sold (if applicable):

If the sole proprietorship sells inventoried products, it may use Part III to reconcile its cost of goods sold (COGS) for the tax year. Part III includes the following details to arrive at a deductible COGS figure for the year:

  • Inventory at the Beginning and End of Year
  • Purchases Less Cost of Items Withdrawn for Personal Use
  • Cost of Labor
  • Materials and Supplies
  • Other Costs

Part IV – Information on Your Vehicle:

If the taxpayer uses a vehicle for business, more information is required. The taxpayer must report the total miles driven during the year and separate those miles between business, commuting, and other miles. The business must also include details on whether the vehicle is available for personal use, does the proprietor have another vehicle available for personal use, and does the proprietor have evidence to support the mileage deductions.

Part V – Other Expenses:

If the sole proprietorship has business expenses where the expense category is not specifically listed in Part II, the business can list the expense type and amount in Part V. The total costs reported in Part V are then reported back in Part II.

Schedule C Video Tutorials

For some detailed video tutorials on completing Schedule C, please see our links below:

Additional Information

Taxpayers can find more information in the Schedule C Instructions and on the IRS website.