Schedule C

Use a Schedule C to report income or loss from a business you operated or professional services you performed as a sole proprietor.

Commonly referred to as sole proprietorship, IRS Schedule C and Schedule C business

Do I Qualify for a Schedule C?

A Schedule C can be used to report income or loss from a business you operated, professional services you performed as a sole proprietor or work you did as an independent contractor or as part of a side business.

2022 Schedule C Details

A Schedule C can be used to report income or loss from:

• A business you operated
• Professional services you performed as a sole proprietor
• Work you did as an independent contractor or as part of a side business

This type of business is very easy to set up, as it does not require you to form another legal structure. It also does not require that an additional tax return be filed, as the Schedule C is part of the individual (Form 1040) return.

A Schedule C does not provide any legal protection. You can be held personally liable for the debts and obligations of the business. This risk can be mitigated by forming a Limited Liability Company (LLC) for the business.

A major drawback of being a Schedule C business is that all of the net profit is taxed for both income tax and for self-employment tax. Many low-risk businesses start as a Schedule C but then convert to another entity type (such as an S corporation, a C corporation, or a partnership) as they become more successful, so they can benefit from the liability protection and tax savings other legal entities offer.

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Benefits

• Ability to deduct eligible business-related expenses
• Simple organizational structure
• Does not require an additional tax return to be filed

Considerations

• All earnings are subject to self-employment tax and income tax
• Unlimited liability if not covered with an LLC

Assumptions When Taking the Schedule C

• The business is owned by one person.

Requirements to Claim the Schedule C

A business activity can qualify as a Schedule C business if:

• Its primary purpose is to generate income or profit
• You are regularly and continually involved in the activity

Business Entities That Can Claim the Schedule C

• Schedule C
• S Corporation
• C Corporation
• Partnership

The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.

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