What is a “Schedule C”?
Are you a statutory employee, have a side gig, or do any freelance work this year? If so, filing a Schedule C could be your new best friend. Schedule C is a form filed within your 1040 that allows you to report income and losses from a business you operated as the sole owner. It’s important to note, you are still able to utilize Schedule C even if your business isn’t registered. Filing a Schedule C can be advantageous for those who are looking to minimize their AGI( adjusted gross income), effectively reducing their tax bill.
Who needs to file it? Why is it Important?
According to the IRS, if you are engaging in activity for the sole purpose for profit and involved in that activity regularly, you should be utilizing the Schedule C. So, congrats to all of you self-proclaimed side-hustlers, self-employed superstars, and statutory specialists, your taxes just got a little bit more complicated! But don’t worry, with some proper due diligence you could be saving yourself hundreds, if not, thousands, of dollars by the time Uncle Sam comes collecting.
If you’re still reading, you most likely received a 1099-NEC, 1099-K, or in some cases a W-2 (statutory employees). These issued forms all indicate taxable income you received from your Solopreneurship journeys. While these forms are all required to be filed along with your annual 1040 tax return, they typically don’t withhold any federal income tax which can create a major tax liability and headache down the road. However, with proper bookkeeping and expense tracking, you can significantly reduce this income on your Schedule C, effectively lowering your final tax bill.
What kind of expense can I deduct?
Luckily, there are several “write-offs” you can utilize to lower that bill, even some you’ve probably never heard of. Here are some common and uncommon expenses you can claim:
- Advertising & Marketing
- Email marketing, social media, sponsorships
- Office Supplies
- Software, Desks, computers, office furniture (can be depreciated instead depending on cost)
- Vehicle Expenses
- Standard Mileage Rate (.67 x Business Miles for 2024) or Actual Expense Method (gas, tires, lease payment, depreciation)
- Home Office
- Simplified Method ($5 per sq ft of exclusively business used space of home) OR Actual Expense Method (% of tracked home related expenses (office size vs home size %)
- Deductible expenses include:
- Rent or mortgage interest
- Utilities (gas, water, electricity, trash)
- Repairs, maintenance
- Depreciation (if you own the home)
- Travel & Meals
- Airfare, hotels, rental cars, Ubers, baggage fees
- Meals: you will typically only be able to deduct 50% of business-related meals (ex. Your dinner is $50, so $25 of that is deductible). Meals can be deductible if you are traveling for business, meeting with a client, or any other reason if you can justify the business purpose.)
- Payroll Expenses
- Salaries paid, bonuses paid, payroll taxes (FICA, FUTA, SUTA, state disability)
- Independent contract work via PayPal, check, Venmo, etc. (must issue 1099-NEC if over $600)
- Payroll services like Gusto, ADP, QuickBooks Payroll, etc.
- Inventory (COGS: Cost of Goods Sold)
- Products purchased to be resold, raw materials, packaging, other supplies associated with the sold product
- Banking & Credit Fees
- Maintenance fees, transaction fees, annual fees, late payment fees, etc.
- Education
- Any education related expenses that maintain or improve skills for your business/trade
- Certifications, books, online learning, conferences, etc.
- Depreciation
- Utilized via Section 179 or Bonus Depreciation (this can get tricky, so there will be a following blog post on this)
- Insurance
- Business liability insurance, property insurance, auto insurance, etc.
- Software & Subscriptions
- Microsoft 365, Zoom, Canva, Shopify, QuickBooks, Xero, LinkedIn Learning, etc.
- Start-Up Costs
- Logo design, website setup, domain names, advertising, equipment, legal fees, etc.
TLDR:
Schedule C is the tax form used by sole proprietors and self-employed individuals to report income and expenses from their business, even if it’s unregistered. If you’re earning income from side gigs, freelancing, or 1099 work, you’re likely required to file one. While it can seem complex and tedious at times, it’s also a powerful tool to lower your taxable income by deducting legitimate business expenses — like advertising, office supplies, vehicle use, home office costs, travel, meals, payroll, inventory, bank fees, education, software, insurance, and even startup costs. Proper tracking and smart deductions can save you hundreds or even thousands when tax time rolls around.