What the Form Is For

Schedule C (Form 1040) is the tax form used by sole proprietors, freelancers, independent contractors, and single-member LLC owners to report business income and expenses to the IRS. If you operated your own business or worked for yourself during 2012—whether as a consultant, freelancer, small shop owner, or any other self-employed professional—this is the form you needed to complete as part of your regular income tax return.

The form calculates your net profit or loss by subtracting your business expenses from your business income. This bottom-line number then flows to your Form 1040 personal tax return and is used to calculate both your income tax and self-employment tax (Social Security and Medicare taxes that self-employed individuals must pay). Think of Schedule C as your business’s mini tax return that attaches to your personal return—it tells the IRS how much you made (or lost) and what it cost you to run your business.

Schedule C is specifically designed for unincorporated businesses operating as sole proprietorships. Your business doesn't need to be large or have a fancy name—if you did work for clients, sold products, or provided services with the intention of making a profit on a regular basis (not just as a hobby), you likely needed to file Schedule C.

When You’d Use It (Including Late and Amended Filings)

For the 2012 tax year, Schedule C was due on April 15, 2013, as part of your Form 1040 tax return. If you needed an extension, you could file until October 15, 2013. However, tax situations don’t always go perfectly, and there are scenarios where you might need to file late or amend your return.

Late Filing

If you missed the April 15, 2013 deadline and didn’t file an extension, you should still file Schedule C as soon as possible to minimize penalties and interest. The IRS charges penalties for late filing (typically 5% per month up to 25% of unpaid taxes) and interest on unpaid taxes. Even if you can’t pay what you owe, filing the return reduces penalties significantly.
There’s no statute of limitations on unfiled returns, so it’s never “too late” to file—though the consequences increase over time.

Amended Returns

If you filed your 2012 Schedule C but later discovered errors—such as missing income, overlooked deductions, or incorrect calculations—you would file Form 1040-X (Amended U.S. Individual Income Tax Return).
For 2012 returns filed by the April 15, 2013 deadline, you generally had until April 15, 2016 (three years from the original due date) to file an amended return and claim a refund. After this three-year window, you can still amend to correct errors, but you typically cannot claim additional refunds.

Additional Filing Scenarios

You would also need to file Schedule C if you:

• Started a business partway through 2012
• Received income reported on Form 1099-MISC for services provided
• Worked as a statutory employee (such as full-time life insurance agents or traveling salespeople whose W-2 has the statutory employee box checked)

Key Rules and Requirements for 2012

Accounting Methods

You needed to use the correct accounting method—either cash or accrual.
Most small businesses used the cash method, where you reported income when received and deducted expenses when paid. The accrual method required reporting income when earned and expenses when incurred, regardless of when money changed hands.

Business vs. Hobby

The IRS distinguished between legitimate businesses and hobbies. To qualify as a business, your primary purpose must be earning profit, and you must operate with “continuity and regularity.”
Sporadic activities or hobbies didn’t qualify, and hobby expenses were limited to hobby income.

Self-Employment Tax

If you had net profit of $400 or more on Schedule C, you also had to file Schedule SE to calculate self-employment tax—your Social Security and Medicare contributions.
The self-employment tax rate for 2012 was 13.3% (temporarily reduced from 15.3%) on net earnings up to $110,100, plus 2.9% Medicare tax on all net earnings above that threshold.

Standard Mileage Rate

If you used your vehicle for business, you could deduct either actual expenses or the standard mileage rate of 55.5 cents per mile for 2012. Once you chose a method for a vehicle, restrictions applied to switching methods in later years.

Simplified Option Eligibility

Small businesses with expenses of $5,000 or less could use Schedule C-EZ, a simplified one-page version.
You couldn’t use Schedule C-EZ if you had employees, claimed depreciation, had inventory, or claimed home office expenses.

Step-by-Step: How to Complete Schedule C (High Level)

Part I: Income

Start by reporting your gross receipts (total business income) on Line 1.
Include all income received from your business, including amounts shown on any Forms 1099-MISC. Subtract returns and allowances, then calculate your cost of goods sold (if applicable) using Part III. Add any other income (like business interest or recovered bad debts) to arrive at your gross income.

Part II: Expenses

This section lists 24 expense categories from advertising to utilities. Enter deductible business expenses like supplies, rent, insurance, travel, meals (50% deductible for 2012), car expenses, and more.
Common deductions included:

• Business insurance premiums
• Office supplies
• Professional fees (accountants, lawyers)
• Repairs and maintenance
• Utilities

Expenses must be ordinary and necessary for your type of business—excessive, lavish, or personal expenses aren’t deductible.

Part III: Cost of Goods Sold

Complete this only if you sold products (not just services).
Calculate your inventory costs by starting with beginning inventory, adding purchases and costs, and subtracting ending inventory.
This figure goes back to Part I to determine gross profit.

Part IV: Vehicle Information

If you deducted car expenses, answer questions about:

• When you placed the vehicle in service
• Miles driven (business vs. total)
• Whether you have written evidence to support your deduction

Part V: Other Expenses

List any deductible business expenses that don’t fit the categories in Part II—such as specialized professional dues or industry-specific costs.

Final Step: Net Profit or Loss

Line 31 calculates your net profit or loss by subtracting total expenses from gross income.
This number transfers to Form 1040, Line 12, and also flows through to Schedule SE for self-employment tax calculation (if you had profit).

Common Mistakes and How to Avoid Them

Mixing Personal and Business Expenses

One of the most common errors was deducting personal expenses as business costs.
Your morning commute isn’t deductible; family meals aren’t business meals unless you discussed business with clients.
Solution: Keep separate business and personal accounts and maintain records. The IRS closely reviews 100% vehicle use claims or excessive meal deductions.

Failing to Report All Income

Every Form 1099-MISC you received was also sent to the IRS. If you didn’t report one, IRS computers would flag the discrepancy.
Solution: Report all business income, even cash payments, and ensure your gross receipts match what the IRS expects.

Incorrect or Missing Business Codes

Line B required a six-digit Principal Business Activity Code. Using the wrong one could delay processing.
Solution: Choose the code that best describes your primary activity from the Schedule C instructions.

Math Errors and Transposition

Arithmetic mistakes often caused processing delays or correction notices.
Solution: Double-check all calculations and ensure numbers are correctly transferred between forms (Schedule C, Form 1040, and Schedule SE).

Claiming Excessive Losses Year After Year

Claiming substantial losses year after year could cause the IRS to question whether your activity was a true business or hobby.
Rule of Thumb: The IRS presumes an activity is for profit if it shows profit in at least three of the last five years.

Overlooking Required Information Returns

If you paid anyone $600 or more for services, you generally had to file Form 1099-MISC by January 31, 2013.
Solution: Check Line I on Schedule C and ensure compliance to avoid penalties.

What Happens After You File

Once you filed your 2012 Schedule C as part of your Form 1040, several processes began.

IRS Processing

The IRS first processed your return through automated systems that checked for mathematical accuracy, missing forms, and income matching with W-2s and 1099s.
If everything matched, you’d receive any refund or confirmation of payment—typically 6–8 weeks for paper returns or 2–3 weeks for e-filed returns.

Self-Employment Tax

Your Schedule C profit triggered Schedule SE calculations, and you owed self-employment tax in addition to income tax.
This tax counted toward your Social Security credits and Medicare coverage, affecting your future retirement and healthcare benefits.
If you expected to owe $1,000+ the next year, you needed to make quarterly estimated tax payments.

Audit Possibility

Schedule C filers face higher audit rates than W-2 earners (though still below 1% overall).
If selected for audit, you’d receive a notice within 2–3 years, requesting receipts, mileage logs, and other documentation.

Records Retention

Keep tax records for three years from filing or two years after payment, whichever is later.
If you understated income by more than 25%, the IRS has six years to audit.
If you claimed depreciation, keep related records until the statute runs out for the year you disposed of the asset.

Future Year Impact

Your 2012 Schedule C established baselines for future returns.
Large swings in income or expenses might raise questions, and deductions like home office depreciation can have future tax consequences when selling your home.

FAQs

Q1: Do I need Schedule C if I only made $500 from freelancing?

Yes. There’s no minimum income threshold for filing Schedule C. If you operated a business, you report all income.
If your net profit was $400 or more, you must also file Schedule SE to pay self-employment tax.

Q2: Can married couples file one Schedule C for a business they run together?

Generally no. Jointly-owned businesses are typically treated as partnerships and must file Form 1065.
However, couples filing jointly could elect qualified joint venture status, allowing each spouse to file their own Schedule C for their share.

Q3: What if I had a loss on Schedule C—can I still deduct it?

Usually yes, if you materially participated in the business.
Losses can offset other income, but passive activity or hobby losses are more limited.

Q4: How long should I keep my 2012 Schedule C records?

Keep records for at least three years from the April 15, 2013 deadline (until April 2016).
Keep longer if you filed late, claimed depreciation, or had substantial unreported income—up to six or seven years.

Q5: I forgot to deduct several business expenses on my 2012 Schedule C. Can I still claim them?

If you filed by April 15, 2013, you had until April 15, 2016 to file Form 1040-X to claim additional deductions and request a refund.
After that window, you can still amend for accuracy, but not to claim new refunds.

Q6: What’s the difference between Schedule C and Schedule C-EZ?

Schedule C-EZ is a simplified version for very small businesses with expenses ≤ $5,000, no employees, no inventory, no home office, and using the cash method.

Q7: Do I need an Employer Identification Number (EIN) for Schedule C?

Usually not—unless you had employees or filed pension/retirement returns.
Most sole proprietors used their Social Security Number. If you already had an EIN, list it on Line D.

Sources:
All information is derived from official IRS.gov publications, including the 2012 Schedule C Instructions, 2012 Schedule C Form, About Schedule C, and 2012 Form 1040-X Instructions.