Schedule C (Form 1040): Profit or Loss from Business – 2024 Guide
What Schedule C (Form 1040) Is For
Schedule C (Form 1040) is the tax form used by sole proprietors and single-member LLC owners to report income and expenses from a business they operated during the tax year. If you work for yourself—whether as a freelance writer, independent contractor, consultant, online seller, or small business owner—Schedule C is how you tell the IRS about your business's financial performance.
The form captures two main categories: all the money your business brought in (gross receipts and other income) and all the ordinary and necessary expenses you incurred to run that business (such as advertising, supplies, rent, and vehicle costs). The difference between income and expenses determines your net profit or loss, which then flows to your Form 1040 individual tax return and affects your overall tax liability.
An activity qualifies as a business—rather than a hobby—if your primary purpose is to make a profit and you engage in it with continuity and regularity. This distinction matters because business losses can offset other income, while hobby expenses generally cannot. Schedule C also covers income reported on various Forms 1099 (such as 1099-NEC for nonemployee compensation, 1099-MISC for miscellaneous income, and 1099-K for payment card transactions), as well as wages and expenses for statutory employees.
Beyond reporting income and expenses, Schedule C connects to other important tax obligations. If your net earnings from self-employment are $400 or more, you'll also need to file Schedule SE to calculate and pay self-employment tax, which covers Social Security and Medicare contributions. Unlike employees who have these taxes withheld automatically, self-employed individuals pay both the employer and employee portions—currently 15.3% on net earnings. Additionally, because no taxes are withheld from business income throughout the year, you may need to make quarterly estimated tax payments to avoid penalties.
When You'd Use Schedule C (Form 1040) (Including Late and Amended Filing)
You file Schedule C with your annual Form 1040 tax return by the standard deadline—April 15, 2025 for the 2024 tax year (or the next business day if April 15 falls on a weekend or holiday). If you need more time, you can request an automatic six-month extension using Form 4868, which moves your filing deadline to October 15, 2025. However, an extension to file is not an extension to pay; you still need to estimate and pay any taxes owed by the original April deadline to avoid interest and penalties.
If you miss the filing deadline without an extension, file as soon as possible. The IRS imposes a failure-to-file penalty (typically 5% of unpaid taxes per month, up to 25%) and a failure-to-pay penalty (0.5% per month), plus interest on any balance due. The sooner you file a late return, the lower these penalties will be. Even if you can't pay the full amount, filing on time or late is still better than not filing at all, and you can work with the IRS on payment arrangements.
Amended returns come into play when you discover errors or omissions after filing your original Schedule C. Common reasons to amend include receiving a corrected or late Form 1099, realizing you forgot to report income or claim legitimate deductions, or needing to correct your accounting method or expense classifications. To amend, you file Form 1040-X (Amended U.S. Individual Income Tax Return) with a revised Schedule C attached.
Timing matters for amended returns. Generally, you have three years from the date you filed your original return or two years from the date you paid the tax (whichever is later) to file Form 1040-X and claim a refund. For example, if you filed your 2024 return on April 15, 2025, you typically have until April 15, 2028 to amend and request a refund. If you owe additional tax due to the amendment, file as soon as you discover the error to minimize interest charges. You can now file Form 1040-X electronically for current and prior two tax years, and track its status using the IRS's "Where's My Amended Return?" tool.
Key Rules or Details for 2024
Several fundamental rules govern Schedule C filing. First, only ordinary and necessary business expenses are deductible. "Ordinary" means the expense is common and accepted in your trade or business; "necessary" means it's helpful and appropriate. Personal expenses never qualify, even if you pay for them from a business account. If an expense serves both business and personal purposes (such as a cell phone or vehicle), you must allocate the cost and deduct only the business portion.
You must use a consistent accounting method—most sole proprietors use the cash method, where you report income when you actually or constructively receive it and deduct expenses when you pay them. Once chosen, you generally can't change methods without IRS approval. Keep detailed records and receipts for all income and expenses; the burden of proof is on you if the IRS questions your return.
Certain expenses have special limits or requirements. Business meals are generally deductible at 50% of cost (though Department of Transportation drivers can deduct 80% under certain circumstances). If you use your vehicle for business, you can choose between the standard mileage rate (67 cents per mile for 2024) or actual expense method, but you must keep detailed mileage logs. The home office deduction requires exclusive and regular business use of a specific area of your home, and you can choose between the simplified method ($5 per square foot up to 300 square feet) or the regular method using Form 8829.
If you have employees, you must obtain an Employer Identification Number (EIN) and fulfill payroll tax obligations. If you pay $600 or more to any individual contractor or service provider during the year, you must file Form 1099-NEC for that person. Failing to issue required 1099s can result in penalties.
Loss limitations can affect how much of a business loss you can deduct. The at-risk rules limit your loss deduction to the amount you have at risk in the business (generally your investment plus borrowed amounts for which you're personally liable). Passive activity rules may further restrict losses if you don't materially participate in the business. Starting in 2018, the excess business loss limitation prevents individuals from deducting more than $578,000 (for 2024, adjusted annually for inflation) in business losses against other income. These limitations don't mean you lose the deduction forever; nonallowed losses generally carry forward to future years.
Step-by-Step (High Level)
Filing Schedule C follows a logical sequence. Start by gathering all your business records: bank statements, receipts, invoices, Forms 1099, mileage logs, and any other documentation of income and expenses. Organize these records by category to make the process smoother.
At the top of Schedule C, provide basic information about your business: your name and Social Security number, the principal business or professional activity code (select from the IRS list that best describes your business), your business name if you have one, your EIN if you've obtained one, your business address, and your accounting method. Indicate if you materially participated in the business and whether you started or acquired it during 2024.
Part I covers income. Report your gross receipts or sales on line 1—this includes all income from business activities, including amounts reported on Forms 1099-NEC, 1099-MISC, and 1099-K. Subtract returns and allowances on line 2 to get net receipts on line 3. If your business involves selling products, you'll calculate cost of goods sold in Part III and enter that amount on line 4. Line 6 captures other business income such as scrap sales, bad debt recoveries, or any other income not included elsewhere. Lines 5 and 7 calculate your gross income and gross profit.
Part II is where you deduct business expenses. The form provides specific lines for common expense categories: advertising, car and truck expenses, commissions and fees, contract labor, depletion, depreciation, employee benefit programs, insurance, interest, legal and professional services, office expense, pension and profit-sharing plans, rent or lease, repairs and maintenance, supplies, taxes and licenses, travel, meals, utilities, wages, and other expenses. List each expense in the appropriate category and total them on line 28. Line 30 is for expenses for business use of your home (either using the simplified method or Form 8829).
If your business uses vehicles or involves inventory, you'll complete Part IV (vehicle information) and Part III (cost of goods sold), respectively. Part V provides space to itemize any other expenses that don't fit the standard categories in Part II—things like bank fees, merchant processing fees, professional memberships, subscriptions, or software.
Finally, line 31 shows your tentative profit or loss (income minus expenses). If you have losses, check whether loss limitation rules apply. If your net profit is $400 or more, you must complete Schedule SE to calculate self-employment tax. The final net profit or loss from line 31 transfers to Schedule 1 (Form 1040), line 3, and ultimately affects your adjusted gross income.
Common Mistakes and How to Avoid Them
One of the most frequent errors is failing to report all business income. The IRS receives copies of all Forms 1099 issued to you, and their computers automatically match these against your return. If you omit income, you'll likely receive a notice. Always report every Form 1099, even if you think the amount is incorrect (you can explain discrepancies in some cases, but report the income first). Don't forget cash income—all business income is taxable and must be reported, regardless of whether you received a form.
Another common mistake is claiming personal expenses as business deductions. The IRS scrutinizes expenses that commonly blend personal and business use: vehicles, home office, meals, travel, and cell phones. Keep meticulous records showing the business purpose and portion of mixed-use expenses. For vehicle expenses, maintain a contemporaneous mileage log showing date, destination, business purpose, and miles driven for each business trip. For home office deductions, measure your dedicated workspace and ensure it's used exclusively and regularly for business.
Many self-employed individuals fail to make quarterly estimated tax payments, then face a large tax bill plus underpayment penalties when they file. If you expect to owe $1,000 or more in taxes after subtracting withholding and credits, you generally must make quarterly estimated payments. Use Form 1040-ES to calculate and pay these amounts by the quarterly deadlines (April 15, June 15, September 15, and January 15 of the following year).
Confusing gross receipts with net income leads to errors. Your gross receipts (line 1) include all money collected, but your taxable income is net profit after expenses. Don't accidentally report expenses as income or vice versa. Similarly, if you sell products, remember to account for cost of goods sold separately in Part III—these costs aren't listed in the Part II expense section.
Some taxpayers neglect the qualified business income deduction (Section 199A), which allows eligible self-employed individuals to deduct up to 20% of qualified business income. This deduction isn't claimed on Schedule C itself, but your Schedule C net profit affects your eligibility. Make sure you or your tax preparer evaluate whether you qualify for this valuable deduction on your Form 1040.
Finally, inadequate recordkeeping causes problems during audits. The IRS can disallow deductions if you can't substantiate them with receipts, logs, invoices, or other documentation. Establish a system to track income and expenses throughout the year—whether that's accounting software, a spreadsheet, or organized folders of receipts. Keep records for at least three years after filing (longer in some circumstances), as the IRS generally has three years to audit a return.
What Happens After You File
After you submit Schedule C with your Form 1040, the IRS processes your return to verify accuracy and compliance with tax laws. Most returns are processed without issue, especially when filed electronically. If you're due a refund, you typically receive it within 21 days of electronic filing (longer for paper returns). You can track your refund status using the "Where's My Refund?" tool on IRS.gov.
The IRS may contact you if they need clarification or find discrepancies. Common triggers include mismatches between reported income and information returns (like Forms 1099), mathematical errors, or missing forms. If the IRS adjusts your return, you'll receive a notice explaining the changes and any additional tax owed or refund due. Respond promptly to any IRS correspondence, providing requested documentation or explanations.
You're required to keep all records supporting your Schedule C—receipts, bank statements, mileage logs, invoices, contracts, and other documentation—for as long as they may be needed for tax administration purposes. The general rule is to keep records for at least three years from the date you filed the return or two years from the date you paid the tax, whichever is later. However, keep records longer if you filed a claim for a loss from worthless securities or bad debt, or if you failed to report income you should have reported. Records related to property should be kept until the period of limitations expires for the year in which you dispose of the property.
If you reported a loss subject to at-risk limitations or passive activity rules, and part of that loss was not allowed in the current year, that nonallowed portion carries forward to future tax years. Keep track of these carryforward amounts, as you may be able to deduct them against future income from the same activity.
Your tax information remains confidential as required by Section 6103 of the Internal Revenue Code. The IRS can't disclose your tax information except in specific circumstances authorized by law.
If you operate multiple businesses, file a separate Schedule C for each one. Each business's results are calculated independently, though the net profit or loss from all schedules flows to your Form 1040. Having separate schedules helps you track each business's performance and supports proper recordkeeping.
FAQs
Do I need to file Schedule C if my business didn't make a profit this year?
Yes, if you operated a business with the intent to make a profit and engaged in it with regularity and continuity, you should file Schedule C even if you had a loss. Reporting the loss may allow you to offset other income on your tax return, potentially reducing your overall tax liability. However, if your business had no activity whatsoever—no income and no expenses—you generally don't need to file Schedule C for that year. Be aware that consistent losses over multiple years may prompt IRS scrutiny about whether your activity is truly a business or merely a hobby, which affects deductibility.
What's the difference between a hobby and a business for tax purposes?
The key distinction is profit motive. A business operates with the primary intent of making a profit and involves regular and continuous activity. A hobby is pursued primarily for personal pleasure or recreation. This matters because business losses can offset other income, while hobby expenses cannot exceed hobby income and face additional limitations. The IRS looks at factors including whether you operate in a businesslike manner, the time and effort you put in, whether you depend on income from the activity, your expertise, your history of income or losses, and occasional profits. If you show a profit in at least three of the last five years (two of seven for horse-related activities), there's a presumption you're engaged in a business, though this isn't absolute.
Can I deduct startup costs before my business officially opens?
Yes, but with limitations. Business startup costs—expenses incurred before your business begins operating, such as market research, advertising, employee training, and professional fees—are treated differently from regular operating expenses. You can deduct up to $5,000 in startup costs in your first year of business, but this deduction phases out dollar-for-dollar if total startup costs exceed $50,000. Amounts not immediately deductible must be amortized (deducted gradually) over 180 months starting with the month your business begins. Keep detailed records of when you incurred these costs and when your business actually started active operations.
If I receive a Form 1099-K from payment processors like PayPal or Venmo, do I have to report that income?
Yes, if the income relates to business activity. Form 1099-K reports payment card transactions and third-party network payments. If these payments represent business income—such as sales from your online store, fees for services, or any other business receipts—you must report the income on Schedule C. However, you don't simply copy the 1099-K amount to your return; report your actual gross receipts based on your records, which should match or explain any differences from the 1099-K. Some 1099-K amounts may include personal transactions, refunds, or other non-income items that you shouldn't report as business income, but you need documentation to support any differences.
Can I deduct health insurance premiums if I'm self-employed?
Self-employed health insurance premiums are deductible, but not on Schedule C. If you're self-employed and have a net profit reported on Schedule C, you may be able to deduct 100% of health insurance premiums you paid for yourself, your spouse, and your dependents on Schedule 1 (Form 1040), line 17. This deduction reduces your adjusted gross income but not your self-employment tax. You can't deduct premiums for any month you were eligible to participate in an employer-sponsored health plan (through your own or your spouse's employer). This deduction can't exceed your net profit from self-employment.
Do I need an Employer Identification Number (EIN) to file Schedule C?
Not necessarily. If you're a sole proprietor with no employees, you can use your Social Security number on Schedule C instead of an EIN. However, you must obtain an EIN if you have employees, if you operate as a partnership or corporation, if you're required to file certain excise or employment tax returns, or if you have a Keogh retirement plan. Many self-employed individuals choose to get an EIN anyway for privacy reasons (to avoid giving their SSN to clients and vendors) and to open business bank accounts. Obtaining an EIN is free through the IRS website and takes only a few minutes.
What happens if I make estimated tax payments but my actual income ends up being different?
Estimated tax payments are exactly that—estimates. You calculate them based on what you expect to earn during the year, but your actual income may turn out higher or lower. If you paid too much in estimated taxes, you'll receive a refund when you file your return (or you can apply the overpayment to next year's estimated taxes). If you didn't pay enough, you'll owe the balance when you file, plus potentially an underpayment penalty. To avoid penalties, your total tax payments (withholding plus estimated payments) should equal at least 90% of your current year tax liability or 100% of your prior year tax liability (110% if your prior year adjusted gross income exceeded $150,000). Many self-employed individuals adjust their estimated payments throughout the year as they get a better sense of actual income and expenses.
For more information and to access Schedule C and its instructions, visit IRS.gov/ScheduleC.
