You’ll encounter numerous tax forms as a small business owner, so it’s understandable if you get confused from time to time. The names of the various forms might even begin to sound like the names of droids from Star Wars. (“This year, I might have to file a C-3PO because I reported earnings on my R2-D2 and losses on my BB-8.”)
But Form 1040 Schedule C is among the most commonly used of all tax forms, so even if the name means nothing to you now, it’s important to know if you’re required to file one.
What Is a 1040 Form Schedule C?
For many small business owners, the Schedule C tax form is where they report income and expenses. Think of it as the yin to the yang of the Form 1040 Schedule 1, which is where profit or loss is reported.
“Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor,” explain the tax experts from IRS.gov. “An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.”
When it comes to Schedule C instructions, 2019 was an important year. It was around this time that the IRS began to allow you to file income taxes via Form 1040. This change streamlined the process for many small business owners.
Who Is Required to File a Schedule C?
If your business is structured as a single-member LLC or a sole proprietorship, filing a Form 1040 Schedule C is likely required. Answer the following questions to determine if the Schedule C is right for you:
- Are you the only owner of your business? If you answered no, then the Schedule C probably doesn’t relate to you. If you answered yes, proceed to the next question to identify the unique structure of your business.
- Is your business a sole proprietorship? If you answered yes, you will need to file a Schedule C. If no, proceed to the next question.
- Is your business a single-member LLC? If you answered yes, you will need to file a Schedule C only if your single-member LLC is structured to report profit or loss in the same way that sole proprietorships do. If you have chosen instead to use a corporate tax return as corporations do, then you won’t need to worry about a Schedule C.
- But wait! There’s 1 more option, though it’s less common. If you own a business with your spouse that is structured as a partnership, there’s a chance you could register as a Qualified Joint Venture and use the Schedule C approach. This is a trickier situation than the other options listed above, so you’ll need to work closely with a tax professional.
Do I Need to File a Schedule C if I Have No Income?
That’s an excellent question. Even if you have a sole proprietorship or single-member LLC that reports profit or loss like a sole proprietorship, you aren’t necessarily required to file a Form 1040 Schedule C.
For example, if your business had no profit or loss throughout a complete year, you’ll be off the hook. The whole point of a Schedule C is to record your profit (ideally) or loss (less ideally). When neither occurs, there’s no need for this type of filing.
You should note, however, that you might be required to use a Schedule C even if your business is inactive. A common example would be if you receive insurance payments related to the business. In scenarios such as this, you would need to file a Schedule C in order to report the payments.
It’s common for small business owners to ask, “How much money do you have to make to file a Schedule C?” As the examples above illustrate, the answer is any money. In short, when a profit or loss occurs, so should a Schedule C.
Filling Out Your Schedule C
As with any tax forms, be it Form 1040 Schedule 1, Form 1040 Schedule C, or something else entirely, you’ll need to spend time organizing your data before you begin filling in fields and clicking submit.
One of the most crucial details on your Schedule C is the amount of your business’s net income or loss. If you are unsure of how to calculate these figures, the good news is that bookkeeping software makes it much easier.
“Before you try to tackle Schedule C on your own, consider using one of the business tax software programs available, either online or in download form,” recommends small business expert Jean Murray. “They will walk you through a set of questions to make sure you don’t miss anything important. These programs will also include your Schedule C on your personal tax return.
For example, Sunrise offers free bookkeeping software that allows you to create invoices, automatically import transactions, and manage your income and expenses. This kind of system does all the heavy lifting, so you can quickly identify the details needed for your Schedule C and other tax forms.
If you’re unfamiliar with bookkeeping software or have specific questions about the Form 1040 Schedule C, be sure to reach out to a trusted expert. Your first call should be to your tax advisor, as they’ll have the insights needed to give you more confidence in your filings. You may also want to confer with your business mentor to get the perspective of a colleague who has already gone through this process in their career.
Perhaps you don’t yet have a mentor and would still like to get advice from an experienced entrepreneur. Reach out to your local Small Business Development Center or SCORE office. These resources can help you to navigate your tax filings and make improvements in your processes so the experience is even more manageable in coming years.