Must You File a Schedule C?

If you are the sole owner of a business or operate as an independent contractor, you're going to become very well acquainted with the tax form used by all these businesses: the Schedule C, Profit or Loss from Business, or its shorter cousin, the Schedule C-EZ, Net Profit From Business.

Do you need to file this form? While we suspect that most of you already know the answer to that question, it pays to review the filing requirements just in case your business does not meet them for a particular year.

If you have $400 or more of business income over and above your expenses (net earnings,) you need to file a Schedule C or C-EZ and a Schedule SE to pay self-employment tax, even if you would not otherwise have enough income to be required to file a tax return.

Although you may know exactly what your business earnings are for normal accounting purposes, if you're close to the $400 threshold or actually had a loss for the year, you'll need to use IRS rules to compute your net business income for tax purposes in order to know the exact amount.

Think Ahead If your business does have a loss for the year, you should file a tax return anyway. That way you can take advantage of the opportunity to carry losses back and/or forward to future years, so you can deduct them in some other year(s) in which you do have a profit.

If you run more than one business as a sole proprietorship, you'll need to net their income together to determine whether you've met the $400 threshold. However, if you meet the filing threshold, you will need to file a separate Schedule C (or Schedule C-EZ) for each business. For example, if one business has a profit of $2,000 and another has a loss of $1,700, your net profit from both businesses is only $300 and you won't need to pay any self-employment tax for the year. We recommend that you do file a Schedule C and a Schedule SE anyway, just to demonstrate to the IRS that you computed your taxes correctly.

Among the Business Tools are Form 1040, Schedule C, Schedule C-EZ and Schedule SE. They are in Adobe Portable Document Format (.pdf), and you will need the free Acrobat Reader to view and print the file.