How to Fill Out Schedule C for Self-Employed Individuals

You started a side business. Maybe freelance writing. Maybe Uber driving. Maybe selling crafts online. You made some money. Then tax season arrives and someone mentions "Schedule C."

You look it up. Schedule C: Profit or Loss from Business. Five pages of lines asking about income, expenses, inventory, and something called "cost of goods sold." You have receipts in a shoebox. Some PayPal payments. A few checks. How do you turn all that into a tax form?

Most first-time Schedule C form filers make expensive mistakes. They forget to track mileage. They don't know what qualifies as a business expense. They mix personal and business costs. And they end up either paying too much in taxes or getting IRS letters months later asking questions. This guide shows you exactly how to fill out Schedule C tax form for tax year 2025 with simple explanations, line-by-line instructions, and strategies that help you claim every deduction you deserve while staying audit-proof.

What is Schedule C and Why does it matter? 

Schedule C tax form reports business income and expenses for sole proprietors (business owned by one person). It is filed with your Form 1040, shows profit or loss from your business and adds that profit to other income on your 1040.

The profit from Schedule C affects your income tax (added to other income), self-employment tax (Social Security and Medicare at 15.3%), Qualified Business Income deduction (20% deduction), and tax credits you might qualify for. You need Schedule C form if:

• You're self-employed
• You're an independent contractor
• You have a side business and you received 1099-NEC or 1099-K for business income
• You have any business income (even $1)

Even if you have a regular W-2 job, any side business needs Schedule C. If you have multiple businesses, file a separate Schedule C for each unless the businesses are closely related.

Schedule C vs Schedule C-EZ

Schedule C-EZ is a simpler version but rarely used now and only available if expenses are under $5,000, you have no employees, and no inventory. Few people qualify, so most use the full Schedule C tax form.

5-Step Process to Complete Schedule C

Follow these five steps to accurately report your self-employment income and maximize deductions on the IRS Form Schedule C.

Step 1: Gather Documents and Complete Business Information

Before starting Schedule C, collect all income and expense documentation and complete the business identification section. Here are all the documents you need:

Income records include:

• 1099-NEC forms (nonemployee compensation)
• 1099-K forms (payment app income like Venmo, PayPal)
• Cash and check income records
• Bank deposit records
• Sales receipts
• Credit card merchant statements

Expense records include:

• Receipts for supplies and equipment
• Office rent or home office records
• Utility bills (if claiming home office)
• Vehicle mileage log
• Meal and entertainment receipts
• Travel expenses
• Phone and internet bills
• Software and subscriptions
• Insurance premiums
• Professional fees

Mileage log is critical for most self-employed people and should include dates of business trips, starting and ending locations, miles driven, and business purpose.

Home office information (if claiming home office deduction) includes square footage of office space, total square footage of home, mortgage interest or rent paid, property taxes, utilities, home insurance, and HOA fees.

Complete Business Information Section (Lines A-I)

Line A (Principal Business or Profession): Describe what you do specifically but briefly. Examples: "Freelance Graphic Design" not just "Freelance," "Rideshare Driver" not "Transportation," "Online Retail Sales" not "Internet Business." The IRS uses this to compare your business to similar businesses.

Line B (Business Code): Enter the 6-digit NAICS code (North American Industry Classification System) found in Schedule C instructions. Look up your business type and enter the code. Example codes: Graphic design 541430, Rideshare 485310, Online retail 454110, Consulting 541611.

Lines C-E: Enter your business name (if you have a DBA or Doing Business As, use that; otherwise leave blank). Enter your EIN if you have one—if you're a sole proprietor with no employees, you probably don't have an EIN. Enter your business address (if home-based, use home address; must be physical address, not P.O. Box).

Line F (Accounting Method): Choose Cash (most common—record income when received, expenses when paid) or Accrual (record income when earned, expenses when incurred). Most self-employed individuals use the cash method. Stick with the same method each year.

Line G (Material Participation): Check yes if you worked in business more than 500 hours during the year or it's your main business activity. Almost everyone checks "Yes"—saying "No" triggers passive loss rules that limit deductions.

Lines H-I: Check Line H if this is the first year of business. Check Line I yes if you paid contractors $600+ during the year and should have sent them Form 1099-NEC.

Key Tip: Keep separate business bank accounts and business credit card to avoid mixing personal and business expenses—this mixing is a red flag for audits.

Step 2: Report Income and Calculate Gross Profit (Part I, Lines 1-7)

In Part I of the Form Schedule C, report all business income and calculate your gross profit before expenses.

Lines 1-3: Gross Receipts and Returns

Line 1 (Gross Receipts or Sales): Enter total income from business including all 1099-NEC amounts, all 1099-K amounts, cash payments, check payments, and credit card payments—everything you received. Don't reduce for returns or refunds yet. For example, if you received 1099-NEC of $15,000, 1099-K of $8,000, and cash/checks of $5,000, enter $28,000 on Line 1.

Line 2 (Returns and Allowances): Enter money you gave back to customers including refunds issued, discounts given after sale, and credits to customers. Most people enter zero here unless they issued refunds.

Line 3: Subtract Line 2 from Line 1 to show your net income.

Lines 4-7: Cost of Goods Sold and Other Income

Line 4 (Cost of Goods Sold): Only if you sell physical products, enter the amount from Part III (calculated later). This is the cost to buy or make products you sold. Skip if you provide services with no physical products.

Line 5 (Gross Profit): Subtract Line 4 from Line 3. Skip Line 4 if providing services only, and just enter the Line 3 amount.

Line 6 (Other Income): Enter unusual business income like rebates, recovered bad debts, or business interest income. Most people enter zero.

Line 7 (Gross Income): Add Lines 5 and 6 to show your total business income before expenses.

Key Tip: If you received a 1099-K showing gross payments, remember it includes fees, refunds, and returns. Report net income on Schedule C form and document the difference to avoid IRS questions about discrepancies.

Step 3: Deduct Business Expenses (Part II, Lines 8-30)

This is where you reduce taxable income by claiming all legitimate business expenses on the IRS Form Schedule C.

Common Business Expenses (Lines 8-27)

Line 8 (Advertising): Marketing costs including online ads (Google, Facebook, Instagram), print ads, business cards, flyers, brochures, and sponsorships. Don't include website hosting (goes on Line 18).

Line 9 (Car and Truck Expenses): Two methods available:

• Standard Mileage Method (easier): 70 cents per mile for 2025 multiplied by business miles plus parking and tolls. Example: 5,000 business miles × $0.70 = $3,500.
• Actual Expense Method: Gas, oil, repairs, insurance, registration, lease payments multiplied by business use percentage. Example: $8,000 total car costs × 60% business use = $4,800.

Choose the method giving the bigger deduction. Most people use standard mileage if they track miles. Can't switch methods once you choose for a vehicle.

Line 10 (Commissions and Fees): Payments to non-employees including commissions to sales agents, referral fees, and payment processing fees (PayPal, Stripe, Square), and marketplace fees (Etsy, eBay, Amazon).

Line 11 (Contract Labor): Payments to contractors and freelancers like virtual assistants, graphic designers, writers, and bookkeepers. If you paid them $600+, you must send Form 1099-NEC.

Line 13 (Depreciation): For equipment and assets lasting more than one year including computers, cameras, tools, furniture, and vehicles (if using actual expense method). Must complete Form 4562 to calculate depreciation, or use Section 179 to deduct full cost immediately (up to $1,220,000 for 2025).

Lines 14-23 (Various Business Expenses): Include employee benefit programs (Line 14), insurance other than health (Line 15), business loan interest (Line 16), legal and professional services (Line 17), office expenses including supplies and software (Line 18), rent or lease of business property (Line 20), repairs and maintenance (Line 21), supplies (Line 22), and taxes and licenses (Line 23).

Line 24 (Travel and Meals): Travel expenses when away from home overnight including airfare, hotels, taxis and Uber, and 50% of meals while traveling. For local business meals with clients, 50% is deductible if there's a business purpose. Keep detailed records. 2025 rule: Meals are 50% deductible.

Lines 25-27: Utilities (Line 25), employee wages (Line 26, not your own salary), and other expenses not fitting other categories (Line 27—list details in Part V on back of Schedule C).

Calculate Total Expenses and Profit (Lines 28-31)

Line 28 (Total Expenses): Add Lines 8 through 27 to show all business expenses combined.

Line 29 (Tentative Profit or Loss): Subtract Line 28 from Line 7. If positive, you made profit; if negative, you have a loss.

Line 30 (Home Office Deduction): If you use part of home exclusively for business:

• Simplified Method (easier): $5 per square foot, maximum 300 square feet, maximum deduction $1,500. Example: 200 square foot office = $1,000.
• Regular Method (potentially larger): Calculate business percentage (office square feet ÷ total home square feet) and multiply home expenses by business percentage. Complete Form 8829. Example: 200 sq ft office in 2,000 sq ft home = 10% business use. Rent $24,000 × 10% = $2,400, plus utilities and insurance proportionally totaling $2,820.

Requirements: Used regularly and exclusively for business, principal place of business or place where you meet clients, can't use for personal activities.

Line 31 (Net Profit or Loss): Subtract Line 30 from Line 29 to show your final business profit or loss. This amount goes to Form 1040 Schedule 1. You'll pay income tax and self-employment tax on profit. If loss, it reduces your other income (subject to hobby loss rules).

Key Tip: Mileage is often the biggest deduction people miss. At 70 cents/mile, 10,000 business miles = $7,000 deduction. Use an app or logbook to record every business trip with date, miles, and purpose.

Step 4: Complete Cost of Goods Sold (Part III) and Vehicle Information (Part IV)

If you sell physical products or claim vehicle expenses, complete these additional sections of the Schedule C tax form.

Part III: Cost of Goods Sold (Only for Product Sellers)

Complete only if you sell physical products—skip if you provide services.

Line 33 (Inventory Method): Choose Cost (what you paid for items, most common), Lower of cost or market (compare cost to market value, use lower), or Other (explain).

Lines 35-41: Calculate cost of goods sold by entering beginning inventory (Line 35—value January 1, 2025, should match ending inventory from 2024), purchases during year (Line 36—what you spent buying or making products), cost of labor (Line 37—wages to workers making products), materials and supplies (Line 38), other costs (Line 39—freight, shipping, storage), add Lines 35-39 (Line 40), inventory at end of year (Line 41—physical count December 31, 2025, valued at cost), and calculate cost of goods sold (Line 42—Line 40 minus Line 41).

Example: Beginning inventory $2,000, Purchases $10,000, Ending inventory $3,000, Cost of goods sold = $2,000 + $10,000 - $3,000 = $9,000. This amount goes to Line 4 in Part I.

Part IV: Information on Your Vehicle

Complete only if you're claiming car expenses on the Form Schedule C.

Line 43: Enter date you started using vehicle for business (month, day, year).

Line 44 (Miles Driven): Break down total miles:

• (a) Total miles driven in 2025
• (b) Business miles
• (c) Commuting miles (home to first client and last client to home—not deductible)
• (d) Other miles (personal)

Only business miles are deductible. Commuting doesn't count. Example: Total 15,000 miles, Business 8,000 miles, Commuting 2,000 miles, Other 5,000 miles.

Lines 45-47 (Vehicle Questions): Answer yes or no: Do you have evidence to support the deduction? (Keep mileage log—answer Yes), Is the evidence written? (Mileage log—answer Yes), Do you have another vehicle for personal use? (If yes, strengthens business use claim).

Key Tip: Keep detailed mileage logs with dates, destinations, miles, and business purpose. The IRS can disallow your entire vehicle deduction without proper documentation.

Step 5: List Other Expenses and Review for Common Mistakes (Part V)

Complete Part V for miscellaneous expenses and review your IRS Form Schedule C for common errors before filing.

Part V: Other Expenses

List expenses from Line 27 here by writing description and amount:

• Bank fees: $120
• Education and training: $500
• Professional memberships: $300
• Software subscriptions: $600

Common items include bank and credit card fees, business association dues, continuing education, professional publications, trade show expenses, uniforms, and tools under $2,500. Add up all items and ensure the total matches Line 27.

How NSKT Global Can Help with Schedule C

NSKT Global specializes in tax preparation for self-employed individuals and small business owners needing assistance with the Schedule C form.

Complete Schedule C Preparation

We handle complete Schedule C tax form preparation by organizing all income sources, categorizing all expenses properly, calculating cost of goods sold, maximizing legitimate deductions, and completing all parts accurately.

Maximize Your Deductions

We find every deduction you're entitled to by reviewing all receipts and records, identifying missed deductions, calculating home office deductions, optimizing vehicle deduction methods, and often finding $2,000-5,000+ in missed deductions.

Reconstruct Missing Records

If you didn't track miles, we reconstruct business miles from calendar/records using IRS-acceptable estimation methods and create defensible mileage logs.

Ongoing Tax Support

We help you avoid quarterly tax penalties, provide multi-business coordination, offer audit defense if the IRS questions your Schedule C, and implement self-employment tax strategies including S-Corp election analysis. Whether you're a first-time freelancer or established business owner, our expertise ensures your Form Schedule C is accurate, complete, and maximizes your tax savings.

Frequently Asked Questions

Q: Do I need Schedule C if I only made $500?

Yes, report all self-employment income no matter how small using the Schedule C form. If net profit is over $400, you also owe self-employment tax. File Schedule C even for small amounts.

Q: Can I deduct my home internet if I use it for business?

Yes, but only the business portion. If you use the internet 50% for business, deduct 50% of cost on your Schedule C tax form. Keep documentation of business use percentage.

Q: What if I didn't keep receipts for expenses?

Use bank and credit card statements to recreate expenses for your IRS Form Schedule C. Better to have receipts, but statements work as backup. For some expenses under $75, you don't need receipts, just good records.

Q: Can I deduct business losses against my W-2 income?

Yes, as long as the business isn't a hobby. IRS hobby loss rules say business must show profit in 3 of the last 5 years or have profit motive. Legitimate losses on Schedule C reduce other income.

Q: Do I need to file Schedule C if I got a 1099-K but it's not my profit?

Yes, report gross income on Schedule C form, then deduct expenses. 1099-K shows total payments including fees and refunds. Your Schedule C shows net profit after expenses.

Q: Can I deduct startup costs before my business started making money?

Yes, up to $5,000 in startup costs are deductible in the first year on Form Schedule C. Costs over $5,000 are amortized over 15 years. Must reduce $5,000 by amount startup costs exceed $50,000.