Profit and Loss from Business: Schedule C

Profit and Loss from Business: Schedule C

If you are paid cash for services performed, you’ll need to complete a Schedule C, Profit and Loss from Business. This form reports earnings and expenses in relation to the work performed. Some common examples include a handyman who works multiple locations, and has expenses for tolls and mileage, or a copywriter who freelances. Schedule C reports all cash income received and expenses that can be documented. You need receipts to verify your expenses or a solid record of mileage and other expenses in order to claim them. Once you’ve completed the form, you’ll have to calculate self-employment tax.

Self-Employment Tax

Just like employees who are not self-employed, you’ll need to pay taxes on your income. Using Schedule SE, Self-Employment Tax, you can determine the amount you’ll owe in Social Security and Medicare taxes. This only applies if you have over $400 in taxable income. Once you’ve completed Schedule C, you’ll use the total income after deducting expenses to calculate the appropriate amount of self-employment tax.

Federal Tax Return

Once Schedule C and Schedule SE are completed, you can calculate your federal tax liability. When you complete federal 1040, you’ll determine your balance due for both federal tax and self-employment tax. Be sure to check for credits and deductions that can reduce or eliminate the amount you owe in taxes. Example: The Earned Income Tax Credit is fully refundable and can affect the amount of taxes you’re responsible for, even eliminating your liability entirely and returning some money to your pocket.

State Tax Return

When you file your state return, you’ll use the adjusted gross income amount listed on your federal 1040. You may owe taxes to your state government once you complete your return, depending on which state you reside in. There aren’t any additional forms to file if you are self-employed and paid in cash, unless you need more documentation in relation to your specific state, other than just federal AGI.