Schedule C Tax Form: Who Should Fill It And How to Do It Right

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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.

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