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If you’re a business owner or self-employed, the IRS wants to know everything you’ve both earned and spent each year on your business. This information is required to calculate your net profit (or loss) or business, and any taxes you need to pay on the income.
The tax form used to report your income and expenses to the IRS is known as the Schedule C Profit or Loss from Business (Sole Proprietorship). With 23 expense categories and 47 lines in total, it can be a daunting task to fill out, especially if you’re completing it for the first time in 2024, for your 2023 taxes.
But fear not! This article will provide step-by-step instructions to help you complete your Schedule C successfully.
And if you’ve been using Everlance or another tool to track your expenses and miles throughout the year, the process will be even easier.
Schedule C is the tax form used for reporting your business income and expenses to the IRS. Typically, anyone who is self-employed or operating a business as a sole proprietor needs to complete the form and file it with your taxes, along with your Form 1040.
What counts as operating a business? Engaging in any activities where:
You’ll notice that formally incorporating your business is not one of the criteria! As long as your goal is to make money, you’re running a business. In fact, that’s the definition of a sole proprietor - someone who owns an unincorporated business by himself or herself. You may have employees that work for you and that you pay, but it’s still considered a sole proprietorship if you’re the only one who pays income taxes on the profits earned from the business.
Examples of types of people who need to fill out a Schedule C include
Conversely, you don’t need to fill out the Schedule C if
Before you can start filling out your Schedule C, you’ll need to gather a few items so you can accurately calculate your income and expenses. If you haven’t been tracking this information with an app like Everlance or keeping good records on your own throughout the year, this step is often the hardest part of the process. After that, it’s primarily about inputting the numbers in the correct fields on the form.
Start by gathering the following forms and information:
Once you have all this information handy, you’re ready to begin! Now we’ll show you where to enter it on the Schedule C tax form as we walk through it section-by-section and explain some of the less straightforward fields. You can also reference the IRS’ Instructions for Schedule C for further details.
When it comes to filing your taxes as a self-employed individual or small business owner, understanding the Schedule C form is crucial. The Schedule C form is used to report income or loss from a business you operated or a profession you practiced as a sole proprietor. Here's a breakdown of the key instructions for Schedule C for the year 2023.
Before filling out your Schedule C form, it's important to have accurate records of your income and expenses related to your business. This includes keeping track of receipts, invoices, and any other financial documents that support the figures you report on your tax return.
Additionally, you'll need to have a clear understanding of the different expense categories that are eligible for deduction on Schedule C. These may include expenses such as advertising, supplies, utilities, and travel.
When filling out Schedule C for the tax year 2023, you'll need to provide details about your business, such as the type of business, its primary activity, and the method used to account for your income and expenses. You'll also need to report your gross receipts, returns and allowances, and cost of goods sold, if applicable.
Furthermore, you'll have the opportunity to deduct various business expenses, such as car and truck expenses, rent or lease expenses, and employee benefit programs. It's important to ensure that you are accurately reporting all relevant expenses to minimize your tax liability while remaining compliant with IRS regulations.
The first section of the Schedule C asks for basic information about your business.
Line A: Enter a brief description of your business, such as “photography” or “landscaping”
Line B: Look up the relevant code from the Principal Business or Professional Activity Codes found on the last three pages here and enter it in this field
Lines C: Leave this field blank unless you’ve given your business a specific name, such as “Cary’s Cupcakes”
Line D: Leave this field blank unless you have applied for and received an Employer ID Number; do not enter your social security number here!
Line E: Enter the address that you operate your business out of. If you primarily work out of your home or spend most of your time in your car, enter your home address.
Line F: Select the accounting method, cash or accrual, you use when calculating your income and expenses. Not sure which one to choose? Here’s a quick explanation of each to help you determine which describes your business.
Line G: Were you regularly involved in your business in 2023? If so, check “yes.”
Line I: Did you hire a subcontractor to help with your business and pay them more than $600 in 2023? If so, check “yes,” and note that you’ll need to file a Form 1099 for them so they can properly file their taxes too.
Okay, great job so far! We’ve made it through the first section. In the next part we'll break down your income.
Here’s the section where you’ll list the money that your business brought in during the year.
Line 1: Enter the total dollar amount that you earned, including compensation that was reported to you on a 1099 tax form and money you earned from providing goods or services
Line 2: Enter the total amount of cash or credit refunds you gave to customers
Line 4: Skip this line for now. After you calculate your Cost of Goods Sold in Part III, you’ll copy it into this field.
Line 6: If you earned any other income, such as an award or federal tax credits, list it here.
Not too bad so far, right? Well, get ready, because the next section is typically the most work, but well worth it. You’ll be adding up all your expenses, which count as deductions to lower your overall tax bill!
In lines 8-27, you will list all the money you spent on your business, broken down by specific categories.
If you drive for work, the Car and truck expenses (line 9) can really add up. It's also a bit more complicated than some of the other categories, so we’ll dive deeper into it first.
There are two methods you can use to claim car-related expenses.
Which method should you use?
The first thing to consider is what method you’ve used in previous years.
Is this your first year claiming car or truck expenses? You don’t have any limitations and can choose either method, but should keep in mind how your decision may affect future years, based on the explanation above.
Beyond these rules, the short answer is: you should use the method that will result in the greatest deduction and save you the most money!
With Everlance, the data is at your fingertips, so it’s fairly simple to calculate what your deduction would be with both methods and then use the one that results in the higher amount.
To calculate your deduction with the standard mileage method:
To calculate your deduction with the actual expenses method:
[.866][.blue-line]Whichever method you choose, it’s vital to track your mileage and keep accurate records and receipts in the event you are ever audited.[.blue-line][.866]
In addition, you can deduct work-related parking fees and tolls on top of whatever you’ve already calculated. Tally all these up, add them to the expenses determined using the standard mileage rate method or actual expense method and enter the total on line 9 of the Schedule C.
Luckily, the rest of the expenses are a bit more straightforward. We’ll touch briefly on the most common ones to watch out for and the relevant Everlance expense category to reference for each. Check out this article for more details on deductible business expenses.
Line 8 Advertising: Enter your total from the Advertising and Marketing category, which can include expenses like business cards and online ads
Line 15 Insurance (other than health): As the name makes clear, this item should not include the cost of any health insurance–those expenses are deductible, but are entered on your Schedule 1 instead. It also should not include the cost of your car insurance, as those expenses are already accounted for in line 9 Car and truck expenses. So what should it include? If you bought any business insurance, such as general liability insurance or malpractice insurance you can enter it on this line.
Line 16 Interest: Enter your total from the Loan Interest (Small business, etc.) category, which can include interest paid on business credit cards or loans, on line 16b. For line 16a, you can only include any interest on a mortgage that was for business purposes only, not for an office in your home. If you have a mortgage on your main home where you have a home office, that expense will be accounted for on line 30.
Line 18 Office expenses: Enter your total from the Office Expenses category, which can include items like office cleaning and decorating expenses. Similar to the above, if you have a home office and pay rent or a mortgage on your home, those expenses should not go here.
Line 20 Rent or lease: We’re probably starting to sound like a broken record right about now, but rent payments for your home and lease payments for your car can not be included on this line because they’re already included elsewhere. Only rent for equipment, such as computers and copiers, or building and land, such as retail or warehouse space, can be entered here.
Line 23 Taxes and licenses: Enter your total from the Software category, along with expenses like business licenses and permits, professional licenses & renewal fees and payroll taxes.
Note: This line is where the cost of your Everlance software license is deducted. That’s right, your Everlance premium subscription is a tax-deductible business expense!
Line 24: Travel and Meals: Enter your total from the Business Travel category on line 24a, and your total from the Business Meals category on line 24b. For 2023, 100% of business meals are deductible (not just 50%).
Line 25 Utilities: Enter the portion of your Mobile Phone Plan that is used for business. Unless you have a second phone plan for business use only, you typically can not deduct your entire cell phone bill–only a portion based on the percentage of time you use your phone for business vs. personal purposes.
Line 27a-29: Skip these ones for now. We’ll come back to them after completing Part V: Other Expenses.
Line 30: Expenses for business use of your home. If you use part of your home exclusively for business or storing inventory, you have two methods you can use to calculate your deduction, similar to your vehicle and car expenses.
Lines 31 and 32: Skip these ones for now too. They’re part of the grand finale when we discuss what’s next.
And give yourself a pat on the back! You’ve finished the biggest chunk of the whole Schedule C tax form.
You only need to complete this part if your business involves physical products. Most service-based businesses don’t have to worry about it and can skip ahead to Part IV.
The cost of goods sold includes all of your costs for making products, storing them and shipping them to customers.
Line 33: Select the accounting method, cost or lower of cost or market, you use when valuing your inventory at the end of the year. Not sure which one to choose? Here’s a quick explanation of each to help you determine which describes your business.
After filling in your amounts for lines 35-41, calculate your cost of goods sold by subtracting line 41 from line 40. Don’t forget to go back to Part I and enter this amount on Line 4 too.
If you claimed car or truck expenses on Line 9 of the form, you’ll need to complete this section with details to help substantiate your deduction.
Line 43: Enter the date you started using your vehicle for business. It doesn’t have to be the date you acquired the vehicle, just the date you started driving for work.
Line 44: Refer to your mileage log or mileage tracking app to get your 2023 annual mileage for each purpose:
When listing the mileage, please don’t guess. The IRS has specific requirements for keeping a mileage log to back up these numbers.
We’re in the home stretch now!
If any of your business expenses don’t fit into the categories listed in Part II, list them here. Common expenses for this section include:
Once you total them up on line 48, remember to go back and enter this amount on line 27a too. Then you calculate line 28 Total expenses and line 29 Tentative profit (or loss) too.
Congratulations! You’ve reached the end of the Schedule C tax form.
Remember lines 31 and 32 that we skipped earlier? We’ll revisit them now.
All of the work you’ve done boils down to line 31 Net profit (or loss). Subtract line 30 from line 29, and this is the amount the IRS considers your business income or loss.
If line 31 is a negative number, meaning your business had a loss, you’ll also need to check either box 32a or 32b indicating how much of your investment is at risk.
The next step is to copy your line 31 net profit (or loss) number to two other tax forms:
That’s it in terms of completing your Schedule C tax form, but if you aren’t sure how to track mileage for taxes yet, you should also take the next step of signing up for Everlance. It’s free to get started, and you’ll be thanking yourself come this time next year!
All you’ll have to do is download your mileage and transaction data, and you’ll be organized and ready to fill out your Schedule C tax form.
NOTE: Your tax situation is unique—just like you! This blog represents generalized tax information. Everlance Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about Everlance. If you need income tax advice, please contact a tax professional in your area.
Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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