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The Purpose of Schedule C

The purpose of Schedule C is to report business income and expenses of a sole proprietorship. Schedule C is filed annually. You attach Schedule C to Form 1040, U.S. Individual Income Tax Return

Who Must File Schedule C?

Schedule C is filed by:

  • Sole proprietorships
  • Single-person LLCs who did not make an election to be taxed as a C or S corporation
  • Individuals who received nonemployee compensation reported on Form 1099-MISC.
  • Statutory employees
    • Full-time life insurance salespersons, full-time traveling salespersons, commission drivers distributing certain foods and beverages, pieceworkers.

More Than One Business

If you own more than one sole proprietorship, a separate Schedule C must be filed for each individual business.

You don't need a separate employer identification (EIN) for each business as long as each business is a sole proprietorship and you don't have any employees in any of your businesses. You can use your social security number as your tax identification number.

For example, if you own and operate Joe's Plumbing Service year-round and Joe's Pool Cleaning service during the summer, you can use your social security number on each Schedule C you file for each business.

After completing each Schedule C:

  • Combine net profits and net losses reported on each Schedule C.
  • Enter your overall net profit or loss on Form 1040, Line 12 , Business income or (loss). A net loss is entered as a negative number (in brackets).
  • A net business profit is added to the other items of income reported on Form 1040.
  • A net business loss is subtracted from the other items of income reported on Form 1040.

Example

  • You own and operate three businesses: Sludge Plumbing Service, Clear View Window Cleaner, and Blue Water Pool Service.
  • The legal structure of each business is a sole proprietorship.
  • Sludge Plumbing Service had an annual net profit of $12,000, Clear View Window Cleaner had an annual net profit of $8,000, and Blue Water Pool Service had an annual net loss of $5,000..

Result:

  • You file a separate Schedule C for each business.
  • You enter an overall net profit of $15,000 ($12,000 plus $8,000 minus $5,000) on line 12 of Form 1040, Business income or (loss) and add it to any other items reported on Form 1040.
  • You file one Schedule SE to report self-employment tax on the combined results of the three businesses.

Self-Employment Tax

Although a separate Schedule C must be filed for each business, only one Schedule SE is required to be filed no matter how many Schedule Cs you file.

Husband and Wife co-Owned Sole Proprietorship

If you and your spouse own and operate a sole proprietorship, each spouse would file their own Schedule C under their own name reporting their share of the income and expenses of the business. For example, if each spouse owns a 50% interest in the business, then each spouse would report 50% of the income and expenses on their own separate Schedule C.

In addition, each spouse would file their own separate Schedule SE under their own name. By doing this, each spouse would get credit towards their own social security and Medicare benefits.

In the above example, if each business was owned by a husband a wife, each spouse would file three Schedule Cs and one Schedule SE.