How to Fill Out Schedule C as an Independent Contractor

Schedule C (Form 1040), titled “Profit or Loss from Business,” is a tax document used by sole proprietors and single-member LLCs to report business income and expenses to the Internal Revenue Service (IRS). This form helps determine the net profit or loss generated by a business, which then directly impacts an individual’s personal tax return, Form 1040. Independent contractors, including freelancers, gig workers, and consultants, use Schedule C to account for their business activities.

Reporting Business Income

Accurately reporting all business income is essential for independent contractors completing Schedule C. “Gross receipts or sales” represents the total income received from all business activities before any expenses are deducted. This includes payments for services, product sales, and other revenue streams.

Independent contractors often receive Form 1099-NEC from clients who paid them $600 or more during the tax year. These forms are a primary source for reporting income on Schedule C, specifically on Line 1. All income, regardless of whether a 1099-NEC was issued, must be reported. This includes income from payment apps, direct bank transfers, cash payments, or selling goods.

Record-keeping, including invoices, bank statements, and payment app reports, ensures every income source is accounted for. Businesses selling products must also account for returns and allowances, which reduce gross income due to customer refunds or price adjustments.

Deducting Business Expenses

Deducting ordinary and necessary business expenses is a key part of reporting business activity on Schedule C. An “ordinary” expense is common and accepted within an industry, while a “necessary” expense is helpful and appropriate for the business. These deductions reduce taxable income, lowering the overall tax liability. Maintaining detailed records, such as receipts, invoices, and logs, substantiates claimed expenses.

Common deductible expenses include:
Advertising and marketing costs, including online ads and print media.
Car and truck expenses, using either the standard mileage rate or actual expenses, with detailed mileage logs.
Commissions and fees paid to non-employees for sales or marketing.
Contract labor fees paid to other independent contractors.
Business-related insurance premiums, such as liability or vehicle insurance.
Interest paid on business loans.
Legal and professional services, including fees for tax advisors or accountants.
Office expenses, including supplies and equipment.
Rent or lease payments for business property or equipment.
Repairs and maintenance costs for business property or equipment.
Business-related taxes and licenses.
Travel expenses for business purposes, including airfare, lodging, and transportation.
Business meals, which are generally 50% deductible.
Utilities for business premises, with a portion allocated for business use if operating from a home.
Wages paid to employees.
Other miscellaneous expenses, such as subscriptions or training.

Navigating Other Schedule C Calculations

Beyond general expenses, certain business activities require specific calculations on Schedule C.

Cost of Goods Sold (COGS)

COGS applies to businesses that sell products. It includes the direct costs of producing goods, such as beginning inventory, purchases, labor, materials, and supplies, ultimately reducing gross income.

Vehicle Expenses

Vehicle expenses offer two deduction methods: the standard mileage rate or the actual expense method. The standard mileage rate, set annually by the IRS (e.g., 70 cents per mile for 2025), simplifies the deduction by accounting for fuel, maintenance, insurance, and depreciation. The actual expense method involves tracking specific costs like gas, oil, repairs, and insurance. A detailed mileage log is necessary to document business use. Generally, if the actual expense method is used in the first year a vehicle is placed in service, a taxpayer cannot later switch to the standard mileage rate for that vehicle.

Depreciation

Depreciation allows for the recovery of the cost of business assets with a useful life of more than one year, such as equipment or furniture. Assets must be used for business and depreciate over time. Methods like Section 179 deduction and bonus depreciation permit accelerated deductions for qualifying assets in the year they are placed in service.

Home Office Deduction

The home office deduction is available if a portion of the home is used “regularly and exclusively” for business, serving as the principal place of business or a place to meet clients. Two methods exist: the simplified option and the regular method. The simplified option allows a deduction of $5 per square foot of the business-use area, up to a maximum of 300 square feet, capping the deduction at $1,500. The regular method requires calculating the proportionate share of actual home expenses, such as rent, utilities, insurance, and depreciation, based on the business use percentage of the home.

Completing and Submitting Schedule C

Once all income and expense data are gathered and calculated, accurately transferring this information to Schedule C is the next step. Whether using tax software or a paper form, all entries must be precise. The form guides the user through various sections to input gross receipts, itemize expenses, and calculate the net profit or loss from the business. This net profit or loss, found on Line 31 of Schedule C, is then transferred to Form 1040, where it is included in the individual’s total taxable income.

Reviewing all entries for accuracy, double-checking calculations, and ensuring all required information, such as the business code and accounting method, is correctly filled out is important. Schedule C also has implications for self-employment tax, which covers Social Security and Medicare taxes for self-employed individuals. The net profit from Schedule C is used to calculate this tax on Schedule SE (Form 1040).

There are two primary methods for filing: e-filing through tax software or with a tax professional, or mailing a paper return. E-filing is often preferred for its convenience and speed. For paper returns, specific mailing addresses are provided by the IRS based on location. Retaining all supporting documentation, including receipts, invoices, and bank statements, for at least three years after filing is recommended. Longer retention periods may be advisable in certain situations.