Schedule C Income and Expenses
Schecule C Income
Line 1 - Gross receipts:
Enter your Gross receipts for the tax year here. This is income earned from services or sales of merchandise.
Line 2 - Returns and allowances:
Sales returns and allowances are deducted from gross receipts. If you sell merchandise, it's a good practice to keep a separate account for Sales Returns and Allowances. Then, at year end, you enter the total from this account on the Returns and allowances line and subtract it from Gross Receipts.
Line 3 - Subtract returns and allowances from gross receipts and enter the result on this line.
Line 4 - Costs of Goods Sold:
Cost of goods sold is calculated as follows:
- Beginning inventory, plus
- Purchases for the year, equals
- Goods available for sale, minus
- Ending inventory (based on your physical count), equals
- Cost of goods sold
Line 5 - Gross profit:
Subtracting cost of goods sold from the amount on line 3 results in Gross profit.
Line 6 - Other income:
This is income not directly related to your service or sale of merchandise.
For example, interest on funds in your business bank account.
Line 7 - Gross income:
After adding other income (if any) on line 6 to gross profit on line 5, you end up with gross income.
Schedule C Expenses
Schedule C lists specific expenses on lines 8 through 27. Note that Line 27, Other expenses, is a catch-all line for other expenses not preprinted on Schedule C. If you have several items that fit into the other expense category, use the space provided on Schedule C to list them individually, then carry the total to Line 27.
Tip: Simplify tax preparation. Set up a chart of accounts using the same expense categories listed on Schedule C.
Expenses Listed on Schedule C
- Line 8: Advertising and promotion
- Line 9: Car and truck expenses
- Line 10: Commissions and fees
- Line 11: Contract labor
- Line 12: Depletion
- For certain oil, gas, mineral, and timber properties
- Line 13: Depreciation and section 179 expense deduction
- Line 14: Employee benefit programs
- Line 15: Insurance
- Line 16: Interest
- Mortgage (paid to banks, etc.)
- Line 17: Legal and professional Services
- Accounting, consulting fees, tax preparation for Schedule C and related schedules, etc.
- Line 18: Office expense
- Bottled water
- Janitorial service
- Other office services
- Line 19: Pension and profit-sharing plans
- Line 20: Rent or lease
- a. For vehicles, machinery, and equipment
- b. Other business property
- Use this line for amount paid for rent or lease of office space in a building.
- Line 21: Repairs and maintenance
- Line 22: Supplies
- Line 23: Taxes and licenses
- Line 24: Travel, meals, and entertainment
- a. Travel
- b. Deductible meals and entertainment (50% deductible)
- Line 25: Utilities
- electricity, water, telephone
- Line 26: Wages
- Line 27: Other expenses.
- Line 30: Home office deduction
- Complete Form 8829 Form 8829 instructions
Deducting the Home Office Deduction on Schedule C
If you claim the home office deduction:
- Complete Form 8829 to figure your home office deduction.
- Enter the home office deduction on line 30, Schedule C.
The home office deduction is used to reduce Tentative profit shown on line 29, Schedule C. You may not claim the home office deduction if line 29 shows a Tentative loss. You may only reduce Tentative profit to zero, not below zero. In other words, you may not use the home office deduction to create a loss.