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Schedule C reports business income or loss for a sole proprietor and helps calculate the net profit or loss that flows to the individual tax return. For a 2025 return, use the IRS Instructions for Schedule C (Form 1040) (2025); rules, rates, and line directions can change by tax year.
Who uses Schedule C?
The IRS says to use Schedule C to report income or loss from a business operated, or a profession practiced, as a sole proprietor. The form also covers certain related situations, including statutory employee income and expenses, certain qualified joint ventures, and some income reported on Forms 1099. Check the current-year instructions to confirm which rules apply to your circumstances.
An activity generally qualifies as a business when its primary purpose is income or profit and it is conducted with continuity and regularity. A sporadic activity or hobby is not automatically a business under that description; the facts and other tax rules matter. State and local taxes, licenses, and other requirements may apply separately.
Before you start: gather records and confirm the tax year
Use the form and instructions for the year in which the income and expenses arose. This guide follows the 2025 instructions, posted January 6, 2026. Gather records supporting business receipts, expenses, mileage, inventory, and purchases of assets. Keep personal costs separate from business costs, and do not claim the same expense in more than one place.
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Check the IRS’s current Schedule C page for later developments before filing: irs.gov/instructions/i1040sc.
Step 1: Identify the business and accounting method
Complete the business name and identifying information requested on Schedule C, including the principal business or professional activity. Choose the accounting method used to report the business, consistent with prior practice and the rules that apply to the business. The method must clearly reflect income.
Cash method
Under the cash method, generally include income when you actually or constructively receive it and deduct expenses when you pay them. Constructive receipt means income is available to you without substantial restriction, even if you have not physically received the money.
Accrual method and inventory
Under the accrual method, timing generally follows when income is earned and expenses are incurred. Businesses with inventory can face additional accrual and accounting requirements. The 2025 instructions describe an inventory-related accrual rule and an exception for certain small business taxpayers; do not assume every seller uses the same method. Follow the detailed rules for your business and inventory.
Step 2: Report business income
Enter gross receipts or sales on line 1, following the current-year instructions for returns, allowances, and any other adjustments. Reconcile receipts against records such as invoices, payment-platform statements, bank deposits, and information returns.
Review Forms 1099-NEC and 1099-K and other information returns, but do not treat them as a complete list of business income. Income may be reportable even when no information form was issued. The instructions also give specific handling for statutory employee income and certain NIL income; consult those directions if either applies.
Step 3: Calculate cost of goods sold if you have inventory
If your business sells products and maintains inventory, complete the cost-of-goods-sold section using the inventory and purchasing information required by the form. Inventory valuation and accounting rules can affect both the amount and timing of deductions. The instructions discuss valuation methods and specific small-business and creative-property exceptions to capitalization rules.
Do not enter an invented inventory figure simply because the section appears on the form. A service provider without inventory may not need to complete this calculation. If your work involves products, materials, or creative property, review the applicable rules before deciding whether an item is inventory, a current expense, or a capitalized cost.
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Step 4: Enter ordinary and necessary business expenses
Report deductible expenses on the lines that match their type, and claim only the business portion. An expense must be business-related and supported by records. The 2025 form includes categories such as:
- Car and truck expenses
- Commissions and fees, contract labor, and employee benefit costs
- Insurance, interest, legal and professional services, and office expenses
- Rent, repairs, supplies, taxes, travel, meals, and utilities
- Depreciation and other expenses
Some equipment, vehicles, and other longer-lived purchases may need to be capitalized and depreciated rather than deducted as an ordinary expense in the year paid. Follow the Schedule C instructions and any referenced forms for those costs. Do not place home-office expenses or vehicle costs in another category if doing so would duplicate a separate calculation.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Step 5: Calculate vehicle expenses and provide vehicle information
For business use of a car in tax year 2025, the IRS standard mileage rate is 70 cents per business mile. This is a year-specific rate; do not use it for a different tax year without checking that year’s instructions. In appropriate cases, taxpayers may instead use actual operating expenses. A business that uses five or more vehicles simultaneously must use actual expenses under the 2025 instructions.
Whichever method applies, separate business use from personal use. Depending on your method and circumstances, vehicle information belongs in Schedule C Part IV or Form 4562 Part V. The IRS points to Publication 463 for detailed recordkeeping guidance. Keep documentation of business use and expenses; qualifying electronic storage systems may be used for written evidence. A paper mileage logbook is optional and is not an IRS-endorsed product.
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1Clear out junk files and repair common Windows errors2Scan for outdated or missing drivers - takes under a minute3Repair Windows errors before they cause bigger problemsStep 6: Determine whether home-business expenses qualify
If you use part of your home for business, you may be able to deduct qualifying expenses, subject to specific requirements and limitations. The 2025 instructions direct filers to calculate the deduction on Form 8829 or, when eligible, elect the simplified method. The resulting amount is reported on Schedule C line 30.
Keep home-use calculations distinct from other business expenses. Whether you qualify and which calculation applies depend on the use of the home and the relevant tax rules; the form’s presence of a home-office line does not by itself establish eligibility.
Step 7: Review the profit or loss and related forms
Schedule C combines business income, cost of goods sold where applicable, and allowable expenses to calculate net profit or loss. That result may affect other parts of your individual return. Schedule C does not calculate every tax connected to self-employment; Schedule SE may also be required in certain situations, along with other forms depending on the business.
Step 8: Check the return and retain support
Before filing, compare entries with source documents and confirm that personal expenses were excluded, business income is complete, and expenses appear only once. Keep records supporting receipts, payments, mileage, inventory, and asset treatment. For vehicle documentation, use the detail in Publication 463 referenced by the instructions.
The IRS’s 2025 paperwork notice estimates 3 hours and 36 minutes for recordkeeping, 1 hour and 19 minutes to learn about the law or form, 1 hour and 39 minutes to prepare the form, and 34 minutes to copy, assemble, and send it. These are government burden estimates, not a prediction of the time any individual will need. Estimates for other Schedule C filers are approved under OMB control number 1545-0074; individual taxpayer estimates are included with the individual income-tax return.
This is general federal tax information, not individualized tax advice. Check the current IRS instructions for your tax year and review separate state and local obligations.
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