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If you're self-employed, run a sole proprietorship, or do freelance work, Schedule C is one of the most important forms you'll file. It's where you report your business income, deduct your business expenses, and calculate your net profit — the amount that flows to your Form 1040 as taxable income and gets hit with self-employment tax.
Part I: Income
Line 1 is your gross receipts — everything you billed or sold before deducting anything. If you received 1099-NEC forms, those amounts should add up to your gross receipts (plus any unreported cash income). Line 4 subtracts cost of goods sold if you sell products, and Line 7 gives you your gross profit.
Part II: Expenses
This is where Schedule C gets powerful. Common deductible business expenses include advertising, car and truck expenses, home office costs, office supplies, professional fees, software subscriptions, business insurance, and travel. Each expense type has its own line. Only legitimate business expenses are deductible — personal costs aren't, and mixed-use items (like a phone used for both work and personal) can only be deducted for the business portion.
The Home Office Deduction
If you use part of your home exclusively and regularly for business, you may be able to deduct home office expenses. The simplified method lets you deduct $5 per square foot up to 300 square feet. The regular method deducts a proportionate share of your rent or mortgage, utilities, and other home costs. See the home office deduction guide for details.
Net Profit and Self-Employment Tax
After all expenses, your net profit (or loss) moves to Schedule SE, where you calculate self-employment tax — currently 15.3% on net earnings up to the Social Security wage base. You can then deduct half of that self-employment tax as an adjustment on your 1040.
Record-Keeping
The IRS can question items on Schedule C for up to three years after you file. Keep receipts, bank statements, and documentation for every deduction you claim. Sole proprietors who show a loss in multiple consecutive years may face scrutiny about whether the activity is a real business or a hobby.