Schedule C-EZ (Form 1040): Net Profit From Business – A Complete Guide
What Schedule C-EZ (Form 1040) Is For
Schedule C-EZ is a simplified version of Schedule C that sole proprietors, statutory employees, and qualified joint ventures can use to report business income to the IRS. Think of it as the “short form” for self-employed people who run uncomplicated businesses. If you freelance, drive for a rideshare service, do consulting work, sell handmade crafts, or operate any other small business where you're the only owner, Schedule C-EZ might be your ticket to easier tax filing.
The form does one main job: it calculates your net profit by subtracting your business expenses from your gross receipts. That net profit number then flows to your Form 1040 (your main tax return) and becomes part of your taxable income. Additionally, if you're self-employed, that profit also goes on Schedule SE to calculate your self-employment tax—essentially your contribution to Social Security and Medicare.
Schedule C-EZ is only available for the 2018 tax year and earlier. After 2018, the IRS discontinued this form, requiring all sole proprietors to use the regular Schedule C beginning with 2019 returns. However, if you're filing or amending a 2018 return, Schedule C-EZ remains a valid option if you meet the requirements.
When You'd Use Schedule C-EZ (Including Late and Amended Returns)
Original Filing
You'd typically file Schedule C-EZ along with your annual Form 1040 by the April 15 deadline following the tax year (or by the October extension deadline if you filed for extra time). For 2018 returns, the original due date was April 15, 2019.
Late Filing
If you missed the deadline and never filed your 2018 return, you can still file Schedule C-EZ with your late 2018 Form 1040. The IRS doesn't have a statute of limitations on how late you can file if you owe taxes, though penalties and interest will accumulate. If you're due a refund, you generally have three years from the original due date to claim it—meaning the last chance to claim a 2018 refund would have been April 15, 2022.
Amended Returns
If you already filed your 2018 return but need to correct business income or expenses, you'd file Form 1040-X (Amended U.S. Individual Income Tax Return) with an updated or newly added Schedule C-EZ attached. Common reasons include discovering you forgot to report some income, finding receipts for expenses you didn't claim, or realizing you could use the simpler C-EZ form instead of the full Schedule C. You generally have three years from when you filed your original return (or two years from when you paid the tax, whichever is later) to file an amended return and claim a refund.
Key Rules and Eligibility Requirements
Schedule C-EZ comes with strict eligibility requirements—you must meet all of these conditions to use it:
Business Requirements
- Your total business expenses were $5,000 or less for the year
- You use the cash method of accounting (reporting income when you receive it and expenses when you pay them, rather than tracking accounts receivable and payable)
- You had no inventory at any time during the year
- You didn't have a net loss from your business (you can only use C-EZ to report break-even or profitable businesses)
- You had only one business as a sole proprietor, qualified joint venture, or statutory employee
Additional Restrictions
- You had no employees during the year
- You're not deducting expenses for business use of your home
- You don't have prior-year unallowed passive activity losses from this business
- You're not required to file Form 4562 for depreciation and amortization (which would be necessary if you placed business equipment or vehicles in service during the year)
If you fail to meet even one of these requirements, you must use the full Schedule C instead. Also note that the $5,000 expense limit applies to your total ordinary business expenses—not your gross receipts or income.
Step-by-Step (High Level): How to Complete Schedule C-EZ
The form is straightforward, containing just three main parts:
Part I – General Information
Start by entering your basic business details. You'll provide your business name (or leave it blank if you operate under your own name), describe what your business does, enter a six-digit business activity code from the IRS's list of codes (found in the Schedule C instructions), and list your business address. You'll also need to answer whether you made payments requiring you to file Forms 1099 and, if so, whether you filed them.
Part II – Figure Your Net Profit
This is where the math happens. On Line 1, enter your gross receipts—all the money your business took in during the year. If you're a statutory employee, your income should come from Box 1 of your Form W-2 with the “Statutory employee” box checked. On Line 2, enter your total deductible business expenses. The form provides an optional worksheet on page 2 where you can itemize expenses like advertising, car and truck expenses, commissions, insurance, office expenses, supplies, meals (at the allowable percentage), and utilities. Line 3 is your net profit: simply subtract Line 2 from Line 1. This number gets reported on your main Form 1040 and on Schedule SE for self-employment tax purposes (unless you're a statutory employee, who doesn't owe self-employment tax on these earnings).
Part III – Vehicle Information
Complete this section only if you claimed car or truck expenses on Line 2. You'll need to provide the date you started using the vehicle for business, report the total business miles versus commuting and other miles, and answer questions about whether the vehicle was available for personal use and whether you have written evidence to support your deduction.
The entire process typically takes far less time than completing the full Schedule C, which can run two pages and require detailed categorization of expenses.
Common Mistakes and How to Avoid Them
Using C-EZ When You Don't Qualify
The most frequent error is filing Schedule C-EZ when you don't meet all the requirements. Before starting, carefully review the eligibility checklist in Part I. If your expenses exceeded $5,000, you had inventory, you hired help, or you're claiming home office deductions, switch to Schedule C immediately. Using the wrong form can trigger IRS correspondence and delays.
Forgetting to Include All Income
You must report all business income, including cash payments, checks, credit card payments, and amounts shown on Forms 1099-MISC or 1099-K you received. The IRS gets copies of these forms, so leaving them out creates mismatches. If the amounts on your 1099s exceed what you're reporting on Line 1, attach a statement explaining the difference (perhaps you had returns or allowances).
Claiming Personal Expenses as Business Deductions
Only ordinary and necessary business expenses are deductible. Your morning latte on the way to your home office isn't deductible, but coffee you bought for a client meeting might be (at 50 percent). Keep detailed records and receipts. If the IRS questions an expense, you'll need to prove it was genuinely business-related.
Poor Vehicle Recordkeeping
If you're claiming car expenses, maintain a contemporaneous mileage log showing dates, destinations, business purposes, and miles driven. The IRS is particularly strict about vehicle deductions. Trying to reconstruct your mileage from memory months later won't hold up in an audit. Consider using a mileage tracking app to make this easier.
Mixing Statutory Employee Income with Self-Employment Income
If you had both types of income, you must file two separate Schedules C—you can't combine them on one form or use Schedule C-EZ to report both. Statutory employee income (from a W-2 with that box checked) isn't subject to self-employment tax, while regular business income is.
Not Reporting Self-Employment Tax
Remember that your Line 3 net profit goes on Schedule SE to calculate self-employment tax (15.3 percent of 92.35 percent of your net earnings). Many new business owners forget this extra tax and face an unexpected bill. Always complete Schedule SE alongside your Schedule C-EZ unless you're a statutory employee.
What Happens After You File
IRS Processing: Once you mail your return or file electronically, the IRS processes it and checks for mathematical errors and common issues. For 2018 returns filed on time, most refunds were issued within 21 days for e-filed returns or six to eight weeks for paper returns.
Matching Program: The IRS runs your return through computer matching programs that compare your reported income against Forms 1099, W-2s, and other third-party documents. If there's a mismatch—say you failed to report income from a 1099-MISC—you'll receive a CP2000 notice proposing changes to your return and possibly assessing additional tax, penalties, and interest.
Audit Selection: While filing Schedule C-EZ doesn't guarantee an audit, self-employment income generally faces higher scrutiny than wage income alone. The IRS uses statistical formulas to identify returns with unusual patterns—like expenses that seem disproportionately high compared to income, or income that seems unreasonably low for the type of business. If selected for examination, you'll receive a notice explaining what information the IRS needs. This is why maintaining organized records is crucial.
State Tax Implications: Your Schedule C-EZ information also affects your state income tax return (if your state has income tax). Most states require you to report the same business income and expenses. Some states also impose their own self-employment or business taxes, and many require separate business licenses, permits, or registration fees. Check with your state's department of revenue for specific requirements.
Self-Employment Tax: Your net profit from Line 3 determines your self-employment tax on Schedule SE. For 2018, the self-employment tax rate was 15.3 percent (12.4 percent for Social Security on the first $128,400 of net self-employment income, plus 2.9 percent for Medicare on all net self-employment income). This tax funds your future Social Security and Medicare benefits—it's not just an extra burden, but your contribution to the safety net you'll eventually draw from.
Quarterly Estimated Taxes: If your business continues and you'll owe more than $1,000 in taxes for the following year, you're required to make quarterly estimated tax payments using Form 1040-ES. The IRS expects you to pay tax on income as you earn it, not just once a year at filing time. Missing estimated payments can result in underpayment penalties.
FAQs
Can I use Schedule C-EZ if I have two small businesses that each qualify individually?
No. One of the key requirements is that you had only one business during the year. If you operated multiple businesses—even if each individually meets all the other criteria—you must use the full Schedule C and file a separate Schedule C for each business.
What's the difference between statutory employees and regular self-employed people?
Statutory employees are workers who meet IRS criteria for employee treatment for Social Security and Medicare tax purposes, even though they might seem like independent contractors. This category includes full-time life insurance sales agents, certain commission drivers who deliver food or beverages, traveling salespeople working full-time for one company, and some home workers who follow company specifications. If you're a statutory employee, your employer withholds Social Security and Medicare taxes, and you report your income on Schedule C-EZ (if you qualify) but don't owe additional self-employment tax. Your Form W-2 will have the “Statutory employee” box checked in box 13.
I did some freelance work but also had expenses that exceeded $5,000. Is there any way to still use the EZ form?
Unfortunately, no. The $5,000 expense threshold is firm, with no exceptions or workarounds. If your business expenses totaled $5,001 or more, you must use the full Schedule C. The regular form isn't significantly more difficult—it just requires more detailed categorization of your expenses across multiple line items rather than a single total.
I forgot to file Schedule C-EZ with my 2018 tax return. Can I just file it now by itself?
No, you can't file a schedule by itself. You'll need to file an amended return using Form 1040-X, which allows you to correct your original return. Attach the Schedule C-EZ and Schedule SE (if applicable) to the 1040-X, explain the changes in the designated section, and recalculate your tax liability. If you originally owed more tax than you paid, you should file the amendment as soon as possible to minimize penalties and interest.
Do I need an Employer Identification Number (EIN) to file Schedule C-EZ?
Most sole proprietors don't need an EIN—you can use your Social Security Number instead. You only need an EIN if you have a qualified retirement plan, are required to file employment or excise tax returns, or file certain other business returns. If you don't have an EIN, simply leave line D blank on Schedule C-EZ. Single-member LLCs should enter the EIN issued to the LLC if they have one for employment taxes or retirement plans.
Can married couples filing jointly each file a Schedule C-EZ for their separate businesses?
Yes, if each spouse operates a completely separate business that meets all the C-EZ requirements. However, if you own and operate a business together, you generally need to file a partnership return (Form 1065) unless you qualify as a “qualified joint venture.” In that case, you can elect to treat the joint business as two separate sole proprietorships, with each spouse filing their own Schedule C or C-EZ for their respective share of income and expenses. This election can provide Social Security credit for both spouses while avoiding the complexity of partnership filing.
After I file Schedule C-EZ, how long should I keep my business records?
The IRS generally recommends keeping records for at least three years from the date you filed your return, as that's the normal statute of limitations for audits. However, if you substantially understated income (by 25 percent or more), the IRS has six years to audit. And if you didn't file a return or filed a fraudulent return, there's no time limit. For employment tax records, keep them for at least four years. For property and equipment, keep purchase records and depreciation schedules until the statute of limitations expires for the year you dispose of the property. As a practical matter, many tax professionals recommend keeping business tax records for seven years to be safe.
Sources: All information in this guide comes from official IRS sources, including the 2018 Schedule C-EZ form, the 2018 Instructions for Schedule C, and IRS guidance on amended returns.
