Schedule C (Form 1040), Profit or Loss From Business, is the form sole proprietors use to report what their business earned and spent during the year. If you work for yourself as a freelancer, consultant, driver or shop owner, and have not set up a corporation or partnership, Schedule C is the center of your tax return. This guide covers 2025 returns filed in 2026 and what to plan for in 2026.
Who files Schedule C
You file Schedule C if you carry on a trade or business as a sole proprietor. The IRS test is whether your primary purpose is income or profit. A hobby or an occasional activity does not qualify. A statutory employee, a worker whose employer does not withhold taxes but who is treated as an employee for Social Security and Medicare, also reports on Schedule C.
A single-member LLC is generally reported on Schedule C unless it elected to be taxed as a corporation. See our guide to LLC tax classification for the options.
Spouses who own a business together and file jointly may qualify as a qualified joint venture if both materially participate and they are the only owners. Each spouse then files a separate Schedule C. A business owned through an LLC does not qualify.
What goes on the form
- Part I, income. Report gross receipts, including amounts shown on Forms 1099-NEC and 1099-K, less returns and allowances. If your reported receipts differ from the forms you received, the instructions call for a statement explaining the difference. See our guide to Forms 1099-NEC and 1099-K.
- Part II, expenses. Advertising, contract labor, insurance, legal and professional fees, supplies, travel, meals and other costs. Business meals are generally limited to 50 percent. Our business expense guide explains the tests.
- Part III, cost of goods sold. Only for businesses that sell or make products. See inventory and cost of goods sold.
- Part IV, vehicle information. Required if you use the standard mileage rate or lease a vehicle, among other cases.
The form also asks which accounting method you use. Most sole proprietors use the cash method, where income is counted when received and expenses when paid. Inventory businesses must generally use accrual unless they qualify as small business taxpayers. See cash vs. accrual accounting.
Where common items belong
| Item | Where it is reported (2025 returns) |
|---|---|
| Car and truck costs | Line 9: 70 cents per business mile for 2025, or actual expenses |
| Depreciation and Section 179 | Line 13, with Form 4562 |
| Meals | Line 24b, generally 50 percent |
| Home office | Line 30, simplified method ($5 per square foot, up to 300 square feet) or Form 8829 |
| Your own health insurance | Not on Schedule C. It is an adjustment on Schedule 1 |
| Your own retirement contributions | Not on Schedule C. They are an adjustment on Schedule 1 |
| Retirement contributions for employees | Schedule C, line 19 |
The taxes that come with Schedule C
Net profit is taxed in two ways. First, it is included in your income and taxed at your regular rates, after any qualified business income deduction. Second, it is subject to self-employment tax: 12.4 percent for Social Security on earnings up to a wage base ($176,100 for 2025 and $184,500 for 2026), plus 2.9 percent for Medicare with no cap. Self-employment tax is figured on 92.35 percent of net earnings, and you can deduct the employer-equivalent half when figuring adjusted gross income. High earners also owe the 0.9 percent Additional Medicare Tax above certain thresholds.
Because no one withholds tax from your profit, you generally need to make quarterly estimated payments if you expect to owe $1,000 or more for the year. Our guides on self-employment tax and estimated taxes cover the details.
What is new for 2025 and 2026
- Vehicles. The 2025 standard mileage rate is 70 cents per business mile. For 2026 the IRS set 72.5 cents for January through June and raised it to 76 cents for July through December. See vehicle and mileage deductions.
- Equipment. Qualifying property acquired and placed in service after January 19, 2025 can be 100 percent expensed in the first year. See depreciation, Section 179 and bonus.
- Information returns. The Form 1099-NEC and 1099-MISC threshold rises from $600 to $2,000 for payments made after December 31, 2025. The Form 1099-K threshold for payment apps is back to more than $20,000 and more than 200 transactions.
Common mistakes
- Mixing personal and business spending in one account.
- Leaving out income because no Form 1099 arrived.
- Claiming a home office for space that is not used regularly and exclusively for business.
- Deducting your own health insurance or retirement contributions on Schedule C instead of Schedule 1.
Keep the records behind every line. Our guide on how long to keep tax records explains the periods.
How we can help
We prepare Schedule C returns for sole proprietors and single-member LLCs in Naperville, Aurora and across Chicagoland, and for clients in other states. That can include reconciling your books to your Forms 1099, reviewing deductions, calculating estimated payments and looking at whether another structure might fit as profit grows. See our business tax preparation and bookkeeping services, or contact us.
Frequently asked questions
Do I need an LLC to file a Schedule C?
No. A sole proprietor can file Schedule C without forming any entity. A single-member LLC is generally reported the same way unless it elected to be taxed as a corporation.
Do I file a Schedule C if I only received a Form 1099-K or 1099-NEC?
If the income came from a business or other activity you do in order to earn a profit, it generally belongs on Schedule C. Whether or not you receive a form, you must report your income. Occasional personal-item sales are treated differently from business sales.
What if my business lost money?
A loss is reported on Schedule C and can generally offset other income, subject to limits such as the excess business loss rule and the requirement that the activity be run to make a profit. Repeated losses can draw questions about whether the activity is a business or a hobby.
Can I deduct my health insurance premiums?
Often yes, but as an adjustment on Schedule 1 rather than on Schedule C. See our guide to health insurance for the self-employed.
Official sources
- IRS: Instructions for Schedule C (Form 1040)
- IRS: Publication 334, Tax Guide for Small Business
- IRS: Sole proprietorships
- IRS: Self-employment tax
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.