What Schedule C is, and why freelancers end up knowing it well
The form where your business income, your expenses and your actual taxable profit meet.
File as a freelancer or sole proprietor in the US and you will get to know Schedule C. It is the form that reports what your business made or lost, and its layout does it no favours with anyone meeting it for the first time.
What it is
Schedule C — 'Profit or Loss From Business' — attaches to your Form 1040. Three things go on it:
- Your gross receipts: everything your clients paid you.
- Your business expenses: the costs that reduce your taxable income.
- Your net profit: what is actually taxed.
Gross income against net income
The whole value of Schedule C is in the gap between those first and last lines. Earn $50,000 as a freelance designer and spend $5,000 on software, hardware and internet, and you are not taxed on $50,000. You subtract the costs and are taxed on the $45,000 net profit.
That figure then carries onto your 1040, and it is also the number your self-employment tax is worked out from — which is why an unclaimed expense costs you twice.
Where the difficulty actually is
Filling in a Schedule C by hand means working through dozens of line items and category codes, deciding which of them your particular costs belong to. The difficulty is almost never the arithmetic. It is the translation — knowing that the thing you think of as 'my Adobe subscription' is what the form calls something else entirely.