IRS Form 1040 (Schedule C) – IRS Forms, Instructions, Pubs 2026

IRS Form 1040 (Schedule C) – IRS Forms, Instructions, Pubs 2026 – If you operate a business as a sole proprietor, freelancer, independent contractor, or gig worker, IRS Schedule C (Form 1040) is one of the most important tax forms you’ll file. It calculates your business profit or loss, which flows directly to your Form 1040 and affects your income tax, self-employment tax, and potential deductions like the Qualified Business Income (QBI) deduction.

This comprehensive guide covers everything you need to know for the 2025 tax year (returns filed in 2026), including who must file, step-by-step instructions, key updates, common deductible expenses, and tips to avoid mistakes. All information comes from official IRS sources.

Download the official 2025 Schedule C form here: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf
Instructions PDF: IRS.gov Schedule C Instructions

What Is Schedule C and Who Must File It?

Schedule C (Profit or Loss From Business) reports income and deductible expenses from a sole proprietorship or single-member LLC (treated as a disregarded entity). The net profit or loss transfers to Schedule 1 (Form 1040) and determines self-employment tax on Schedule SE.

You should file Schedule C if you:

  • Operate an unincorporated business as a sole proprietor (including freelancers, consultants, rideshare drivers, online sellers, and most gig workers).
  • Are a statutory employee (report W-2 wages with statutory employee box checked on Schedule C).
  • Participate in a qualified joint venture with your spouse.
  • Receive 1099-NEC, 1099-MISC, or 1099-K payments for business activities.

Do not use Schedule C for:

  • Partnerships or multi-member LLCs (use Form 1065).
  • Corporations (use Form 1120 or 1120-S).
  • Hobby activities (no profit motive).

File a separate Schedule C for each distinct business.

Key Updates for 2025 Tax Year

Several important changes apply to 2025 Schedule C filings:

  • Standard mileage rate — 70 cents per mile for business vehicle use (up from prior years).
  • Bonus depreciation — 100% for certain qualified property placed in service after January 19, 2025 (elect prior rates if beneficial).
  • Section 179 deduction — Maximum increased to $2.5 million (phase-out begins at $4 million of qualifying property).
  • Domestic research & experimental expenditures — Deductible currently or amortizable over 60 months.
  • Qualified sound recording productions — Up to $150,000 deduction for qualifying costs.
  • New above-the-line deductions (claimed on Schedule 1-A, not directly on Schedule C) — Qualified tips (up to $25,000), qualified overtime pay, and personal-use portion of car loan interest. Report the business-use portion of vehicle interest on Schedule C.
  • Business meals — Remain 50% deductible.
  • Excess business loss limitation — Losses may be limited; use Form 461 if applicable.
  • Home office for Form 1040-SS filers — Now reported on Schedule C, line 30.

Gig economy workers: Report all platform income (even if no 1099 received) on Schedule C. Visit IRS.gov/Gig for guidance.

Step-by-Step Guide to Filling Out Schedule C

Basic Information (Top of Form)

  • Enter your name and SSN.
  • Line A: Principal business or profession (e.g., “Freelance graphic design”).
  • Line B: Six-digit NAICS code (find in instructions).
  • Line C: Business name (if any).
  • Line D: EIN (if you have one; otherwise leave blank).
  • Line E: Business address.
  • Line F: Accounting method (most small businesses use cash).
  • Line G: Material participation (usually “Yes” to avoid passive loss limits).
  • Line H: New business started in 2025?
  • Lines I/J: Did you file (or will file) required 1099s?

Part I: Income (Lines 1–7)

  • Line 1: Gross receipts or sales (include all 1099 income and cash payments).
  • Line 2: Returns and allowances.
  • Line 4: Cost of goods sold (from Part III).
  • Line 5: Gross profit.
  • Line 6: Other income (e.g., tax credits, refunds).
  • Line 7: Gross income.

Part II: Expenses (Lines 8–27b)

List ordinary and necessary business expenses. Common categories include:

  • Advertising
  • Car and truck expenses (Line 9) → Standard mileage or actual costs
  • Contract labor (Line 11)
  • Depreciation and Section 179 (Line 13) → Use Form 4562
  • Insurance (Line 15, other than health)
  • Interest (Line 16)
  • Legal and professional services (Line 17)
  • Office expense (Line 18)
  • Rent or lease (Line 20)
  • Repairs and maintenance (Line 21)
  • Supplies (Line 22)
  • Taxes and licenses (Line 23)
  • Travel (Line 24a) and meals (Line 24b, 50%)
  • Utilities (Line 25)
  • Wages (Line 26)
  • Other expenses (Line 27b, from Part V)

Line 28: Total expenses (before home office).
Line 29: Tentative profit or loss.
Line 30: Home office deduction.
Line 31: Net profit or loss.

Home Office Deduction (Line 30)

Choose simplified method ($5 per square foot, max 300 sq ft) or actual expenses (Form 8829). The space must be used regularly and exclusively for business. Simplified method has a gross income limitation and no carryover.

Part III: Cost of Goods Sold

Required for businesses with inventory. Track beginning/ending inventory, purchases, labor, and other costs.

Part IV: Information on Your Vehicle

Complete if claiming vehicle expenses on Line 9 and not filing Form 4562. Record total miles, business miles, and evidence of use.

Part V: Other Expenses

List miscellaneous items (e.g., startup costs up to $5,000, amortization, bank fees, software, etc.).

Net profit (Line 31) goes to:

  • Schedule 1 (Form 1040), line 3 (business income).
  • Schedule SE for self-employment tax (generally 15.3% on net earnings up to the Social Security wage base).

You may qualify for the 20% QBI deduction on net profit from Schedule C.

Most Common Deductible Expenses on Schedule C

Here’s a quick reference of frequently claimed items (always keep documentation):

  • Vehicle — Standard mileage (70¢/mile in 2025) or actual costs (gas, repairs, depreciation).
  • Home office — Portion of rent/mortgage interest, utilities, insurance, depreciation.
  • Supplies and equipment — Office supplies, software, computers (Section 179 or bonus depreciation).
  • Marketing — Website, advertising, business cards.
  • Professional services — Accountant, lawyer, consultant fees.
  • Travel and meals — Business travel (100%); client meals (50%).
  • Insurance — Business liability, errors & omissions (health insurance is an adjustment on Form 1040).
  • Phone and internet — Business-use percentage.
  • Education and training — Courses directly related to your business.
  • Retirement contributions — SEP-IRA, Solo 401(k) (deductible on Form 1040).

Recordkeeping tip: Maintain separate business bank/credit card accounts and use apps or spreadsheets to track mileage and receipts.

Common Mistakes to Avoid

  • Failing to report all income (including cash and platform payments).
  • Claiming personal expenses as business deductions.
  • Inadequate records for vehicle or home office use.
  • Forgetting self-employment tax (and the 50% deduction for it).
  • Mixing multiple businesses on one Schedule C.
  • Ignoring the excess business loss limitation.

When to Seek Professional Help?

Use tax software (TurboTax, H&R Block, etc.) for straightforward situations. Consult a CPA, enrolled agent, or tax professional if you have:

  • Employees or complex inventory.
  • Significant home office or vehicle expenses.
  • International income or large losses.
  • Questions about new 2025 deductions.

Additional IRS Resources

  • Publication 334: Tax Guide for Small Business (individuals who use Schedule C).
  • Publication 463: Travel, Gift, and Car Expenses.
  • Publication 587: Business Use of Your Home.
  • Publication 946: How to Depreciate Property.
  • IRS Small Business and Self-Employed Tax Center: IRS.gov/SmallBiz
  • Gig Economy Tax Center: IRS.gov/Gig

Filing deadline: April 15, 2026 (or October 15 with extension). Pay any owed taxes by April 15 to avoid penalties.

Final Thoughts

Mastering Schedule C helps sole proprietors and self-employed individuals reduce taxable income legally while staying compliant. Accurate reporting and thorough documentation are your best defenses during an audit.

This guide provides general information based on current IRS publications and forms as of 2026. Tax rules can change, and your situation may require personalized advice. Always verify with the latest IRS guidance or a qualified tax professional.

Need the form? → Download Schedule C PDF

Start gathering your records early and file with confidence. Successful tax season!

This article is for educational purposes only and is not tax or legal advice.