Schedule C explained

Schedule C is the IRS form where a sole proprietor reports business income and expenses. Here is what each part means, with a worked example.

Schedule C (Form 1040), Profit or Loss From Business, is the form where a sole proprietor reports the year’s business income and expenses. A single-member LLC taxed the default way usually uses it too (IRS).

You subtract your expenses from your income. The result is your net profit, on line 31. That one number sets both your income tax and your self-employment tax.

The short version

Schedule C is for one business. If you have two businesses, you file one for each.
Part I is income. Part II is expenses.
Line 31 is net profit. It goes to Schedule 1, line 3, and to Schedule SE, line 2.
Your books, not your 1099 forms, are the source of your income figure.
Most mistakes happen in your books, before you open the form.

Words to know

Sole proprietor: a person who owns a business alone and has not formed a corporation.
Gross receipts: all the money your business was paid in the year.
Net profit: income minus expenses.
Schedule SE: the form where you figure self-employment tax.
Accounting method: cash or accrual. On the cash basis, you report income when you receive it and expenses when you pay them.

The questions at the top

Before the numbers, the form asks about your business:

Line A: what your business does, such as “graphic design services”.
Line B: a six-digit business code from the instructions.
Line D: your employer identification number (EIN), if you have one. If you do not have one, leave it blank. Do not enter your Social Security number there (IRS). See do I need an EIN.
Line F: your accounting method.
Line G: if you “materially participated”. One test is more than 500 hours of work in the year.
Lines I and J: if you made payments that need a Form 1099, and if you filed them. For payments made in 2026, Form 1099-NEC is generally needed for a contractor you paid $2,000 or more (IRS).

Part I: income

Line 1 is gross receipts. The instructions say to make sure it includes the amounts on any Forms 1099-NEC you received (IRS). Also include income with no form, such as card payments from clients. Line 2 is refunds you gave. Line 7 is your gross income.

Part II: expenses

Part II has a line for each common type of expense. Some examples:

Line 8: advertising
Line 10: commissions and fees
Line 11: contract labor
Line 15: insurance
Line 22: supplies
Line 24a: business travel, such as flights and hotels
Line 24b: business meals. The deduction is 50% of the cost (IRS).
Line 27b: other expenses, which you list in Part V

Line 28 is the total. To learn which costs count, see what counts as a business expense.

Lines 29 to 31

Line 29 is a tentative profit. Line 30 is the home office deduction. With the simplified method, it is $5 for each square foot of the office, up to 300 square feet (IRS). Line 31 is your net profit or loss.

An example

Maya is a freelance designer. (She is an example, not a real person.) Her books for 2026 show $84,000 of business income. Her clients sent 1099-NECs for only $52,000, because some clients paid by card. She uses $84,000, the figure from her books.

Line	What it is	Amount
7	Gross income	$84,000.00
8	Advertising	$1,200.00
10	Commissions and fees	$1,450.00
11	Contract labor	$4,000.00
15	Insurance	$600.00
22	Supplies	$310.00
24b	Meals ($600 spent, 50%)	$300.00
27b	Other expenses (software)	$1,890.00
28	Total expenses	$9,750.00
29	Tentative profit	$74,250.00
30	Home office (150 sq ft × $5)	$750.00
31	Net profit	$73,500.00

Her $73,500 goes on Schedule 1, line 3, and on Schedule SE, line 2 (IRS). Her self-employment tax is about $73,500 × 92.35% × 15.3% = $10,385. See self-employment tax explained.

Where Schedule C goes wrong

Most mistakes happen in the books:

A transfer from savings is counted as income.
Personal spending is counted as a business expense.
An estimated tax payment is recorded as an expense. It is not.

Each mistake changes line 31, and line 31 sets two taxes.

A tip for Righto users

Righto does not prepare Schedule C or calculate tax. It keeps your books on the cash basis, and its Profit and Loss report gives your totals by category. Use our Schedule C categories tool to see where common expenses usually go.

Common questions

I did not get a 1099 from a client. Do I still report the income? Yes. Line 1 is all of your gross receipts, with or without a form.

My single-member LLC has its own name. Does it use Schedule C? Usually yes, unless the LLC chose to be taxed as a corporation.

Can I file Schedule C with a loss? Yes. Some rules can limit how much of the loss you can use, so ask a tax professional.

What to do now

Reconcile every business account to its December statement.
Check that transfers and owner draws are not in income or expenses.
Run your Profit and Loss report for the year.
Add your mileage log and home office size. The mileage and home office calculators work out both amounts.
Give it all to your tax preparer, or copy the totals onto the form.

Righto is free, easy to use and needs no account.

Sources

Righto gives general information, not tax or legal advice. Ask a tax professional about your business.