Tax forms
Schedule C (Form 1040): line-by-line guide and the records each line needs
Schedule C reports profit or loss from a sole proprietorship or one-member LLC. A line-by-line map of the 2025 form, the records behind each line, the mileage and home office rates, and how line 31 flows to Schedule SE.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
Schedule C (Form 1040) is the IRS form a sole proprietor uses to report income or loss from a business or profession. It attaches to Form 1040, 1040-SR, 1040-SS, 1040-NR or 1041, and its line 31 net profit goes to both Schedule 1 (Form 1040), line 3, and Schedule SE, line 2. Self-employment tax of 15.3% applies when net earnings from self-employment are $400 or more.
Who files Schedule C
The IRS says Schedule C reports income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity counts as a business when your primary purpose is income or profit and you are involved with continuity and regularity. A sporadic activity, a not-for-profit activity or a hobby doesn't qualify. That income goes on Schedule 1 (Form 1040), line 8j instead.
Schedule C is also used for wages and expenses of a statutory employee, for certain qualified joint ventures, and for certain amounts shown on Forms 1099-MISC, 1099-NEC and 1099-K.
A one-member domestic LLC is generally not treated as a separate entity for federal income tax. Its owner files Schedule C (or Schedule E or F, if applicable) unless the LLC elected to be treated as a corporation.
Spouses who co-own and run an unincorporated business can elect to be a qualified joint venture. Each spouse then files a separate Schedule C with their share of income and deductions. A business that spouses own through an LLC doesn't qualify for this election.
If you owned more than one business, you complete a separate Schedule C for each one.
Header, lines A to J: what each asks and the records behind it
The top of the form identifies the business. Line D takes the EIN issued to you on Form SS-4. The instructions say not to enter your SSN there and not to enter another taxpayer's EIN from a Form 1099. If you have no EIN, leave line D blank.
Line G asks whether you materially participated. The instructions list seven tests. The first is participating for more than 500 hours during the tax year. Another is more than 100 hours, and at least as much as any other person. A business you don't materially participate in is a passive activity, and Form 8582 may limit the loss you can enter on line 31.
Part I: income, lines 1 to 7
Line 1 is gross receipts or sales. If the box 1 totals of the Forms 1099-NEC you received are more than what you report on line 1, the instructions say to attach a statement explaining the difference. Statutory employees check the box on line 1, and anyone with both statutory employee income and self-employment income must file two Schedules C.
Line 2 is returns and allowances, entered as a positive number. A sales return is a cash or credit refund to a customer who returned a product. A sales allowance is a price reduction given instead of a refund. Line 3 subtracts line 2 from line 1.
Line 4 is cost of goods sold, carried from line 42 in Part III. Line 5 is gross profit. Line 6 is other business income not reported elsewhere in Part I, including federal and state gasoline or fuel tax credits or refunds. Line 7, gross income, adds lines 5 and 6.
Sole proprietors who receive Medicaid waiver payments on a Form 1099-MISC or 1099-NEC that are excludable under Notice 2014-7 report the full amount on line 1, then report the excludable amount in Part V and write "Notice 2014-7" next to it.
Part II: expenses, lines 8 to 27b
Part II lists the main expense categories. The form says expenses for business use of your home go only on line 30. The table maps the lines where the IRS instructions set a specific rule.
Lines 28 to 32: home office, net profit and losses
Line 28 totals lines 8 through 27b. Line 29 is the tentative profit or loss.
Line 30 is business use of your home. You attach Form 8829 for actual expenses, or use the simplified method. Under the simplified method, you generally multiply the square feet used regularly and exclusively for business by $5, and the area can't be more than 300 square feet.
Line 31 is net profit or loss. A profit goes on both Schedule 1 (Form 1040), line 3, and Schedule SE, line 2. Estates and trusts enter it on Form 1041, line 3.
With a loss, line 32 asks about your investment. Box 32a means all investment is at risk. Box 32b means some isn't, and Form 6198 must be attached. An excess business loss isn't reflected on line 31. It is figured on Form 461 and included as income on Schedule 1 (Form 1040), line 8p.
Part III: cost of goods sold, lines 33 to 42
Part III is for businesses that sell products. Line 33 asks how closing inventory is valued: cost, lower of cost or market, or other. Line 34 asks whether the way quantities, costs or valuations are figured changed during the year.
Lines 35 to 39 add beginning inventory, purchases less items withdrawn for personal use, cost of labor (not counting amounts paid to yourself), materials and supplies, and other costs. Line 41 is ending inventory. Line 42 subtracts it, and the result goes to line 4.
For 2025, a small business taxpayer is one with average annual gross receipts of $31 million or less for the 3 prior tax years that isn't a tax shelter. The instructions give small business taxpayers exceptions to the rules on capitalizing costs and keeping inventories.
Part IV: vehicle information and mileage rates
Part IV is completed when you claim car or truck expenses on line 9 and aren't required to file Form 4562 for the business. The instructions say to use Part IV if you claim the standard mileage rate, lease your vehicle or your vehicle is fully depreciated. Otherwise the vehicle details go in Form 4562, Part V.
Part IV asks when the vehicle was placed in service, your business, commuting and other miles for the year, whether it was available for personal use, whether you have another vehicle, and whether you have evidence, and written evidence, to support the deduction.
Scroll sideways to see all columns.
| Period | Rate per business mile | Source |
|---|---|---|
| 2025 | 70 cents | Instructions for Schedule C |
| January 1 to June 30, 2026 | 72.5 cents | IRS news release |
| On or after July 1, 2026 | 76 cents | Announcement 2026-11, IRB 2026-29 |
The business standard mileage rate was 70 cents per mile for 2025. For 2026, the IRS set it at 72.5 cents per mile beginning January 1, 2026. Announcement 2026-11 then raised it to 76 cents per mile for business miles driven on or after July 1, 2026, citing higher fuel prices.
Part V: other expenses, line 48
Part V lists business expenses not included on lines 8 to 27a or line 30. The total goes on line 27b. The instructions name several items that belong here.
- Startup costs: if the business began in 2025, up to $5,000 can be deducted, reduced by the amount total startup costs exceed $50,000. The rest can be amortized over 180 months.
- De minimis safe harbor: tangible property up to $2,500 per item or invoice, or up to $5,000 with an applicable financial statement.
- Technology and software tools that are ordinary and necessary, such as tax preparation software and subscription services used to manage the business. Software that must be depreciated or amortized isn't deducted here.
- The excludable part of Medicaid waiver payments, marked "Notice 2014-7".
After Schedule C: Schedule SE and due dates
Self-employment tax is figured on Schedule SE. The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It applies, and Schedule SE must be filed, when net earnings from self-employment are $400 or more. For 2026, the Social Security part applies to the first $184,500 of combined wages, tips and net earnings. The employer-equivalent half of the tax is deductible when figuring adjusted gross income.
The 2025 Form 1040 instructions say to file Form 1040 or 1040-SR by April 15, 2026. The 2026 Form 1040-ES lists estimated tax payments due April 15, 2026, June 15, 2026, September 15, 2026 and January 15, 2027.
The instructions also say books and records relating to the form must be kept as long as their contents may become material in administering any Internal Revenue law.
Aldro prepares and files Schedule C, Schedule SE and the owner's Form 1040 as part of one flat yearly price that covers everything tax. Our team works from your books, and bookkeeping is available monthly.
Worked example
Say a freelance designer filing a 2025 Schedule C had $80,000 of gross receipts on line 1, no returns and no inventory, so line 7 gross income is $80,000. Expenses: advertising $1,200 (line 8), 4,000 business miles at 70 cents = $2,800 plus $150 of parking and tolls = $2,950 (line 9), $900 of accounting fees (line 17), $600 of office supplies (line 18), and $1,000 of business meals, of which 50% = $500 goes on line 24b. Line 28 total: $6,150. Line 29 tentative profit: $80,000 minus $6,150 = $73,850. A 200-square-foot home office under the simplified method is 200 x $5 = $1,000 on line 30. Line 31 net profit: $72,850, entered on Schedule 1, line 3, and Schedule SE, line 2. On Schedule SE, net earnings are 92.35% of that profit (the factor on the IRS Form 1040-ES worksheet): $67,277. That is under the Social Security cap, so self-employment tax at 15.3% is about $10,293.
Common questions
Who has to file Schedule C?
Sole proprietors with a business run for income or profit with continuity and regularity, one-member LLC owners whose LLC hasn't elected corporate treatment, statutory employees, and spouses who elect qualified joint venture status.
Where does hobby income go if not on Schedule C?
A sporadic activity, a not-for-profit activity or a hobby doesn't qualify as a business. Its income is reported on Schedule 1 (Form 1040), line 8j.
Do I fill out Schedule C Part IV or Form 4562 for my vehicle?
Part IV is for filers who claim the standard mileage rate, lease the vehicle or have a fully depreciated vehicle, and aren't required to file Form 4562 for another reason. Otherwise the vehicle goes in Form 4562, Part V.
How is the home office deduction claimed on Schedule C line 30?
Either attach Form 8829 for actual expenses or use the simplified method: generally $5 per square foot of qualifying space, up to 300 square feet.
Where do self-employed health insurance and my own retirement contributions go?
Not on Schedule C. Health insurance for yourself, your spouse and dependents may be deductible on Schedule 1 (Form 1040), line 17. Retirement plan contributions made on your own behalf go on Schedule 1 (Form 1040), line 16.
What if my Forms 1099-NEC add up to more than my line 1?
The instructions say to attach a statement to your return explaining the difference.
Aldro
The cheapest way to get your business taxes done: $399 flat.
Business tax filing is $399 USD a year, and it covers everything tax for that year.
How it works
- Tell us about your business. A two-minute form. No payment is collected through it.
- Get your next steps by email. We’ll email you the next steps within one business day. After you sign up we’ll send you a secure upload link for your documents.
- We file it. Our team prepares and files your return. Add bookkeeping for $20 a month if you want it.
What's included
$399 a year covers everything tax for that tax year.
- Every business return for the year. All the federal and state or provincial business returns you need for the tax year: Schedule C, 1065, 1120-S, 1120 and their state returns in the US; T2, or T1 with T2125, in Canada.
- More than one state. Multi-state returns are included at the same price.
- Your personal return. The owner’s personal return (1040 or T1) is included when it’s needed for the business income.
- Quebec. Quebec returns (CO-17, TP-1 and TP-80) are included, and our Quebec pages are in French.
- Extensions and reminders. Extensions (Form 7004 or 4868) and quarterly estimate reminders are included.
- Information returns. 1099-NEC, T4/T4A and T5018 slips are included in the tax price.
- Unfiled past years. Each unfiled prior-year return is $399 per tax year, the same flat price.
- Bookkeeping at $20 a month. Unlimited bank and card accounts, monthly reconciliation and monthly statements.
Payroll processing and sales-tax filing aren’t included in bookkeeping. Prices are in USD. Our team prepares and files your return.
Sources
- IRS: Schedule C (Form 1040) 2025 · checked October 31, 2026
- IRS: Instructions for Schedule C (Form 1040) · checked October 31, 2026
- IRS: Self-employment tax (Social Security and Medicare taxes) · checked October 31, 2026
- IRS: 2026 business standard mileage rate · checked October 31, 2026
- IRS: Internal Revenue Bulletin 2026-29 · checked October 31, 2026
- IRS: 1040 and 1040-SR instructions · checked October 31, 2026
- IRS: Form 1040-ES (2026) · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.