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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:

  • Add up net profits and net losses (if any) reported on each Schedule C.
  • Subtract total net losses from total net profits.
  • Enter your overall net profit or loss on Form 1040, Line 12 (2011), Business income or (loss).
  • A net business profit is added to other items of income reported on Form 1040.
  • A net business loss is subtracted from other items of income reported on Form 1040.

Example

  • You had three businesses
  • You operate each one as a sole proprietorship
  • Two of your businesses have a total net profit of $20,000 and one has a net loss of $5,000.

Result

  • You must file three Schedule Cs (attach them to your Form 1040)
  • You enter the net amount, $15,000 ($20,000 minus $5,000) on line 12 of Form 1040, "Business income or (loss)".
  • Only one Schedule SE is required to be filed (see "Self-Employment", next).

Self-Employment

Only one Schedule SE is required to be filed, no matter how many Schedule Cs you prepare. So, in the above example, where three Schedule Cs were prepared, only one Schedule SE is required.

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