For independent contractors, filing taxes is a little more complicated. Contractors donâ€™t have an employer, so theyâ€™re creditworthy for paying taxes and reporting their income. 1099 contractors must use IRS Form 1040 to report income. however, Form 1040 includes extra requirements for 1099 contractors. specifically, you must report your occupation income and related expenses on Schedule C, Profit or Loss from Business ( Sole Proprietorship ). In the postdate article, weâ€™ll provide an overview of IRS Schedule C instructions for independent contractors .
What Is A Schedule C?
autonomous contractors ( besides known as 1099 contractors ) use Schedule C to report business income. If youâ€™re a 1099 contractor or sole owner, you must file a Schedule C with your taxes. Your Schedule C form accompanies your 1040 and reports clientele income, expenses, and profits or losses. If you operate a business in the Sharing Economy or if you work as an autonomous contractor, like driving for Uber or working freelancer on Upwork, the income you earn and the associate business expenses need to be reported on a Schedule C .
Click here for the IRS schedule C page, which includes downloadable copies of the form.
Schedule C Tax Form
The IRS Schedule C kind is an significant class for business owners and sole proprietors. After you calculate your income and expenses, your Schedule C will show profits or losses. If you have a profit, you will need to pay both income and self-employment tax. And, regardless of whether you have a profit or loss, youâ€™ll report this figure on your 1040 and Schedule SE. kind 1040 includes the rest of your income, deductions, and credits to determine your income tax, and Schedule SE calculates your self-employment tax .
If you operate more than one business, you will need to file a separate Schedule C for each clientele. For model, if you rent your home plate out on Airbnb and besides drive for Uber, you will need to file a separate Schedule C for each of those businesses .
What Is the Difference Between a Schedule C and a Business Tax Return?
Schedule C is a share of your individual tax return ( Form 1040 ) where your clientele shows its income and expenses. however, it is not technically a disjoined occupation return. A separate business return exists when you have a partnership or when you file your business as an S-Corporation. These returns are filed individually and provide a Schedule K-1 that attaches to your kind 1040 .
One key profit to filing a separate occupation tax return is that if your occupation is ever audited by the IRS, they will alone request your business records. As a Schedule C filer, the IRS would audit your business and personal records together. This besides means that if the bank requests information for your business, you need to hand over your full personal return .
Do I Need to File One?
A Schedule C is for sole proprietorships, that is, a clientele you own by yourself and isnâ€™t registered with your state as a specific character of business. You will besides need to file a Schedule C if you are the sole member of an LLC ( these are referred to as single-member LLCs or SMLLCs .
According to the IRS, you must file Schedule C : to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.
Schedule C Instructions
Schedule C instructions may seem intimidating, but, for most small commercial enterprise owners, they prove fairly straightforward. once you list your expenses and income, youâ€™ve basically completed the form .
however, staying organized is keystone to successful filing. Before you begin, gather all of your business documents. You need your profit/loss instruction, expense reports, mileage track, asset information, and early relevant business documents. once you have all your paperwork in order, start filling out your schedule C .
inaugural, calculate your businessâ€™s income. If you use Sharing Economy apps like Airbnb, Uber, or Upwork, you can view an annual gross report on your profile. Be sure to include gross earnings as you will deduct any commissions in the ‘ expenses ’ part of your Schedule C .
Enter entire income on Line 1. If you operate a brick-and-mortar or on-line storehouse, you must besides subtract the returns, allowances, and cost of goods sold, or COGS, from the Line 1 sum. following, you add any early income you received during the year ( e.g. fuel tax credit ) to calculate your crying income.
If your commercial enterprise doesnâ€™t involve selling goods, you donâ€™t have to worry about COGS. Your crude income goes on Line 7 .
The next step is to calculate your deductions. This is where you will list your business expenses. Examples of deductible expenses include :
- Business insurance
- Car expenses
- Mortgage interest
- Office supplies
- Operating costs
- Professional fees
- Repair and maintenance
- Service fees
These are listed on Line 8 through Line 27 in alphabetic order. other expenses like bank fees, cell call, internet, membership dues, and web site costs are listed on Line 27. Your sum expenses go on Line 28. If you are claiming the home function subtraction, it goes on Line 30. The standard home office deduction allocates $ 5 per square infantry, astir to 300 hearty feet. As a result, the maximum home agency discount is $ 1,500. Keep in mind, you can only claim this deduction if you have a dedicate space expressly for business function .
From there, subtract Line 28 ( sum expenses ) from telephone line 7 ( arrant income ). then, subtract Line 30 if you are claiming it. You calculate your net profit or loss on Line 31. This number gets reported on your 1040 for income tax purposes .
If you show a profit on Line 31, you will besides need to calculate the self-employment tax using Schedule SE. Self-employment tax represents your fortune and the employer part of Social Security and Medicare taxes in the amount of 15.3 %, half of which can be deducted as a business expense. If you report a loss on Line 31, no self-employment tax is due .
How To File As an Independent Contractor
As an freelancer contractor, you will need to file a Schedule C with your individual tax return. Having a estimable accounting system in place can help you stay organized for when it comes fourth dimension to prepare your taxes. Save all receipts, as expense chase is important in order to claim deductions. Quickbooks is a great account program that allows you to keep track of expenses while on the go. Simply snap a picture of the receipt and you can mechanically categorize it. This makes filling out your schedule C far easier .
In summation, you should besides consider a mileage tracker if you are planning on claiming the standard mileage deduction. This is a must for Uber and early car-sharing services drivers. Trip Log and Mile IQ are big apps that besides integrate nicely with Quickbooks .
It is authoritative to keep track of all of your income as an mugwump contractor, as it all needs to get reported. Keep in mind, you may or may not receive a 1099-K from sites like Upwork and Airbnb. Most companies like Upwork, Uber, and Airbnb will merely issue a 1099-K if you reach 20K in tax income and have over 200 transactions. In the event you do receive a 1099-K, you must report your income accurately as the IRS besides receives a copy of the 1099-K. even if you do not receive a 1099-K, the IRS can still request income information based on your taxpayer ID ( SSN or EIN ), as all platforms request this information .
Schedule C Example
It may seem a short confuse to fill out a Schedule C, but most of the difficulty revolves around staying organized. If you accurately track all income, expenses, and supporting documents during the year, you just need to follow the Schedule C instructions and fill in the blanks .
Get Help With Your Schedule C Form
Confused about Schedule C instructions ? We understand that it can seem intimidating for many mugwump contractors, specially if you are newfangled to your commercial enterprise. But, accurately filing your occupation taxes can A ) save you money by maximizing deductions, and B ) protect you in casing of an IRS audit. As such, itâ€™s worth working with a tax professional.
We want to help ! At Shared Economy Tax, we live and breathe Schedule C charge for small businesses, then contact us to set up a tax planning scheme school term !