Which Schedule C line is this expense? · Free tool

What is Schedule C?

Schedule C (Form 1040), Profit or Loss From Business, is where a sole proprietor reports business income and expenses. Freelancers and owners of a single-member LLC taxed as a sole proprietorship file it too. The profit flows to your Form 1040, and to Schedule SE for self-employment tax.

How Schedule C sorts expenses

Part II has a line for each common kind of business expense, from Advertising (line 8) to Utilities (line 25). Costs that do not fit a line go in Part V, Other expenses, with a short description of each, and the total goes on line 27b. The home office deduction has its own line, 30.

What counts as a business expense?

The IRS rule is that a business expense must be both ordinary (common and accepted in your kind of business) and necessary (helpful and appropriate for it). It does not have to be required. Personal costs are not deductible, and a cost you use for both gets only its business share.

Meals with clients or while traveling are usually 50% deductible.
Phone, internet and car: only the business share.
Costly equipment is usually depreciated or expensed under section 179 on Form 4562, which flows to line 13.

Not business expenses

Paying yourself (owner draw). Money you take out is not an expense. In Righto it is Owner Draw.
Income tax payments. Your federal income tax and self-employment tax are not business expenses.
Transfers between your accounts. Paying your card or moving money is a transfer, not an expense.
Personal purchases. Personal costs are not deductible.

Records to keep

Keep a record of each expense: the receipt or bank line, the date, the amount, who you paid and the business reason. For meals and travel, note who was there and why. For a car, keep a mileage log. The IRS asks you to keep records for at least three years after you file.

Sort expenses all year, not in April

Matching hundreds of bank lines to Schedule C lines in one weekend is the hard way. Righto, the free accounting app for Mac, sorts your bank lines into categories with rules as you import statements, so your totals are ready at tax time. See categories and accounts.

Frequently asked questions

Where do software subscriptions go on Schedule C?

Most people list them in Part V, Other expenses, as "Software", which flows to line 27b. Some put them under Office expense (line 18). Pick one and use it every year.

How much of a business meal can I deduct?

Usually 50%, on line 24b. Keep the receipt and note who you met and the business purpose.

Can I deduct a home office?

Yes, if part of your home is used regularly and only for your business. It goes on line 30, worked out on Form 8829 or with the simplified method ($5 a square foot, up to 300 square feet).

Should I use actual car costs or the standard mileage rate?

Either, but not both for the same car. The standard mileage rate is simpler: keep a log of business miles. Actual costs need every gas, repair and insurance receipt plus the business share of use. Both go on line 9.

What goes in Other expenses (line 27b)?

Business costs that do not fit any other line, such as software, bank fees, training and professional dues. List each one with a short description in Part V; the total goes on line 27b.

Is paying myself a business expense?

No. As a sole proprietor, money you take out is an owner draw. It does not lower your profit. Only wages you pay employees go on line 26.

What if I put an expense on the wrong line?

A deductible expense is still deductible, but the right line keeps your return clear and consistent from year to year. Ask a tax professional if you are not sure.

Who files Schedule C?

Sole proprietors, freelancers and owners of a single-member LLC taxed as a sole proprietorship. It shows your business income and expenses, and the profit goes to your Form 1040.

Sources

These are the usual lines. The right line depends on your facts, and some costs are only partly deductible.