How to Fill Out Schedule C for a Side Business, Part by Part

Schedule C (Form 1040) is where a sole proprietor reports a side business: gross receipts at the top, expenses in the middle, and one number, net profit on line 31, at the bottom. That profit then moves to Schedule 1 and Schedule SE. The figures below follow the IRS instructions for the 2025 form, the one most people file in 2026.

1. The header lines

Most of the top section is quick.

• Line A and B. Describe the activity that produces most of your income, in plain words, and pick the six-digit business activity code from the chart at the end of the instructions. The IRS says to file a separate Schedule C for each business you own.
• Line D, the EIN. If you do not have an EIN, leave line D blank. The instructions say you need an EIN only for things like a qualified retirement plan or employment and excise returns. Do not put your Social Security number there.
• Line F, accounting method. Most side businesses use the cash method, which means you report income when you actually or constructively receive it and expenses when you pay them. The IRS says the method must clearly reflect income. Changing methods generally takes Form 3115.
• Line G, material participation. Check "Yes" if you meet one of seven participation tests, such as working more than 500 hours in the year, or more than 100 hours while doing at least as much as anyone else. "No" makes the activity passive, which can limit losses.
• Line H. Check the box if you started or acquired the business this year.
• Line I. Check "Yes" if you made payments that require you to file Forms 1099, such as paying a contractor.

2. Part I: Income

Line 1, gross receipts. Report all income from your business from all sources. The IRS lists the 1099-NEC, 1099-MISC and 1099-K as common forms, but a missing form does not make income optional. If the total on your 1099-NEC forms, box 1, is more than what you report on line 1, attach a statement explaining the difference.

Line 2, returns and allowances. Refunds you gave to customers, or price reductions instead of refunds, go here as a positive number.

Line 6, other income. Scrap sales, business interest, prizes and awards related to the business, and other income not shown elsewhere.

A statutory employee (W-2, box 13 checked) reports that income on line 1 and checks the box there. That is a narrow case; most side earners get a 1099 instead.

3. Part II: Expenses

The instructions walk through each line. A few worth knowing:

• Line 9, car and truck. You can use actual expenses or the standard mileage rate. If you take the standard rate, add parking fees and tolls, and do not deduct depreciation or lease payments for that vehicle.
• Line 10, commissions and fees. The instructions point to Form 1099-NEC when you pay certain commissions and fees of $600 or more during the year (the 2025 form's threshold; Form 1099-NEC thresholds change for later years).
• Line 18, office expense. Office supplies and postage.
• Line 24a and 24b, travel and meals. Meals are generally deductible at 50%.
• Line 27b and Part V, other expenses. Anything that does not fit a named line. On the 2025 form, line 27a is the energy efficient commercial buildings deduction.
• Line 30, home office. Use Form 8829, or the simplified method: the area used regularly and exclusively for business, up to 300 square feet, multiplied by $5.

Expenses that create a longer-lasting asset may not be fully deductible in one year, so check the instructions before deducting large purchases.

4. Part III: Cost of goods sold (if you sell products)

If you make or buy products to resell, inventory matters. Small business taxpayers, with average annual gross receipts of $31 million or less for the three prior years, can choose not to keep an inventory, but must still use a method that clearly reflects income. If you do keep inventory, Part III figures the cost of goods sold, which is subtracted from your receipts before you reach business profit.

5. A worked example

These numbers are assumed, for illustration only.

Self-employment tax: $9,300 x 0.9235 x 0.153 = about $1,314. Half of it, about $657, is deductible on Schedule 1, line 15.

6. Where line 31 goes

For individuals, the IRS instructions say to enter the net profit or loss on line 31 and include it on Schedule 1 (Form 1040), line 3. Also include it on Schedule SE, line 2. Self-employment tax is figured on Schedule SE, and one-half of it is deducted on Schedule 1, line 15.

If you have a loss, you may have to apply the at-risk and passive-activity rules before the loss can be entered on line 31, so a loss is not always fully deductible. A net profit also counts as earned income for the EITC, as Publication 596 states.

7. Records behind the numbers

Schedule C is only a summary. The numbers need to come from records you keep: sales reports, 1099s, receipts and mileage logs. If a figure cannot be supported, it does not belong on the form.

8. Key takeaways

• Schedule C turns gross receipts into one net profit figure on line 31, then flows to Schedule 1, line 3 and Schedule SE, line 2.
• Line 1 includes all business income, whether or not a 1099 arrived. Explain any 1099-NEC total that exceeds line 1.
• Leave the EIN line blank if you do not have one. You generally need an EIN only for specific situations.
• Sellers of products also use Part III for cost of goods sold unless they qualify to skip inventory.
• Half of self-employment tax is deductible on Schedule 1, line 15.
• A business loss may be limited by the at-risk and passive-activity rules.