What is a Scheduled C Form and Why Do You Need One as a Freelancer?

If you have $400 or more earnings for your self-employed business, the IRS requires you to pay self-employment tax. If your business is established as a sole proprietor, you will use a Schedule C (Form 1040, Form 1040-SR) to report your business income and loss.

Here is the IRS definition of a sole proprietor:‍

A sole proprietor is someone who owns an unincorporated business by themselves. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.‍

Two important sections of the Schedule C forms to note are that you need to enter information about your income and your business expenses. Lunafi makes it very easy to have a Profit and Loss Statement at the end of each year so you can share it with your CPA. 

Schedule C – Income

The important thing about this section is as outlined in Line 1 is you need to enter the total amount of gross receipts and sales*. (Before any tax deductions and business expenses.) If your income comes from goods you sell, you will enter the total cost of goods sold - where you will later fill in Part 3 of Schedule C- in Line 4.

‍

* When you classify your earnings as a business income in Lunafi, the total of all transactions marked as a 1099 income will sum up to your total income stated in the Profit and Loss report for the year.   

Schedule C – Business Expenses

In this section, you will enter the amounts for your business expenses for dedicated categories. All other expenses that are not included in lines between 8 and 26 are summed up in Line 27a. Computer or software expenses, the use of your phone for your business or business-related subscriptions may go into the Other Expenses part, where you need to list these in Part 5 of the form.

‍

Car and Truck Expenses (Line 9): If you use your vehicle for your business, there are two methods you can use.

‍

Standard Mileage Rate: This method dictates a fixed dollar amount per mile. (57.5 cents per mile for 2020.) There are rules to be qualified if you are planning to go with this method.

Actual Expenses: This method determines what it will cost to operate your car for business uses only. That is, you need to know what portion of the total miles driven are business miles.

You need to fill either Part 4 of Schedule C or Form 4562 for the details of the business use of your car.

Lunafi helps you keep that percentage in your tax profile so you can see the actual deductible amount for every car-related expense in the app.

Insurance (Line 15): You can expense any amount you paid for insurances except health insurance. The cost for your health insurance will be deducted from your overall taxable income when your income tax is calculated.

Home Office Expenses (Line 30): Similar to Car Expenses, you can choose between two methods when it comes to claiming your home office deductions.

Simplified Method: You can deduct $5 per square foot of home used for business. (maximum 300 square feet.)

Actual Method: In this method, you will fill form 8829 and itemize every home office-related expense like rent, mortgage interest, or utilities. You also calculate the percentage of your home office area in your home by entering the area used regularly and exclusively for business and total size.

In Lunafi, once you enter the information related to your home office setup, you can see the total deductible amounts related to home office expenses.

Easily Track Your Income and Business Expenses

One of the most complex parts of running your own business is dealing with taxes. Although it is a good practice to work with a CPA for tax filing, knowing how self-employment taxes work will be helpful to be organized when the time comes. 

Lunafi makes it very easy to track your income and all business expenses and generate a Profit and Loss report, so you or your accountant can prepare your tax filing on time.