Schedule C: How to Declare Freelancing Income Correctly
Sole proprietors must report income and losses from their
businesses to the IRS on time. For it, they use Schedule C, an addition to
individual or trust/estate tax returns. If you are an independent contractor,
the information below will help you fill out this form without errors.
What Is Form 1040 Schedule C?
The IRS Schedule C is an addition to the main tax return
forms. It is a two-page document in which self-employed and freelancers
describe their income and losses for the past reporting period. Based on this
information, the amount of taxes due is calculated, as well as other things
like refunds.
Who Files a Schedule C Form?
At first, it may not be clear who exactly the Schedule C
Form is designed for. Fortunately, the IRS describes three categories of
taxpayers that must complete this application:
- Sole proprietors. Suppose the existing business is not
registered as a corporation and is operated by an individual. In that case, the
income and losses from it must be reported on Form 1040 Schedule C. Most
self-employed people fall into this group.
- Single-member LLCs. If your business is registered as an
LLC, but you are the only one running it, you also need this form. Unlike other
types of corporations, you do not have to file any other papers about your
income and shares.
- Side gigs. Even if you have official employment, you can
have a side job. Such additional earnings should be declared using this
addition to your main tax return.
How to Fill Out Schedule C?
Since this form involves mathematical calculations, you
should be careful when filling it out. Follow our Schedule C tax form 2022
guidelines to avoid mistakes:
1. For starters, you need to enter your name, professional
activity, business name, SSN, IEN, and address. Next, you need to choose an
accounting method and answer a few simple questions about the business.
2. Now, go to Part 1 and calculate the profit earned for the
past year. Enter the total amount received from the goods and services provided
and subtract allowances and returns. Add tax credits and refunds to the
resulting gross profit to get gross income.
3. Next, complete Part 2 about your expenses. List the
amount of all business expenses you have this year: rent, transportation,
utilities, and so on. Determine the total amount of costs, as well as losses
(if any).
4. Part 3 is about calculating the cost of goods you sold
this year. It can be both products you offer and the consumables needed in
work.
5. Part 4 should be completed if you use any vehicle for
business purposes. If you don't have a car, skip this block.
6. If Part 2 does not cover all of your expenses, use Part 5
to enter other expenses manually.
Note that the form contains precise wording; you need to
choose the options offered or enter the exact amounts. Only Part 5 gives you
the opportunity to describe what the main text does not cover.
How to Sign Schedule C for Form 1040?
The Schedule C Profit or Loss From Business is an addition
to the tax return, so no signature is required. But the main form must be
signed. Here's how you can do it with PDFLiner:
1. Pick the form you need on the site and open it in the
editor.
2. On the top toolbar, find the œAdd Sign icon to launch
the Signature Wizard.
3. If you sign a document in PDFLiner for the first time,
you will be offered to choose from three options:
- upload an image with a signature from your device;
- draw it manually with a mouse or touchpad;
- type your name and convert it to handwriting.
4. Choose the most convenient option, create a signature,
and click œSign.
5. Your signature will appear next to the cursor. You can
move it around the document and place it anywhere.
The signature created in this way is stored in your
account's memory. You can reuse it in the future or generate a new one.
Advice and Tips for Schedule C
While the IRS Schedule C instructions can really make things
easier, here are a few more tips on how to complete this blank without the
hassle:
- Freelancers and sole proprietors are forced to do large
amounts of work. If you have little experience or want to make your job easier,
hire a tax preparer who will do all the calculations and fill out the necessary
forms.
- If you don't have an office, employees, deductions, or
inventory, use cash accounting, and your expenses do not exceed $5,000 in
total, then you can fill out a simplified version of this form called Schedule
C-EZ.
- Those sole proprietors with multiple income sources need
to complete as many forms as they have business activities.
- Don't miss tax deductions. Not everyone knows, but the tax
office offers many options for reducing the tax burden (up to 20%), for instance,
by removing obstacles to the elderly or disabled individuals or introducing
energy-saving technologies.
- Don't forget to pay estimated taxes quarterly if you think
your taxes will exceed $1,000 for the whole year. It will help you avoid
penalties at the end of the reporting period.
Bottom Line
Like any other activity, freelancing and side work is
subject to declaration. If you have several sources of financial income, you
should fill out a separate form for each. Use Schedule C to report your gains
and losses by April 18th.
