Schedule C, line by line, for people who have never filed one
US Written for United States taxpayers
Schedule C is where your business exists as far as the IRS is concerned. It is two pages, most of it will not apply to you, and the entire thing exists to produce one number: your net profit on line 31.
That number then drives everything else — your self-employment tax, your income tax, your QBI deduction, and your retirement contribution limit. Get Schedule C right and the rest follows.
This is a complete line-by-line reference. Every numbered line is below with the caption as the IRS prints it, so you can read this alongside the form. If you are looking for one specific line, the index in the next section is the fastest route; if you want to know which line a particular expense belongs on, skip to where common expenses go.
Which form year? The line numbers here are from the current revision of Schedule C — the one you file in 2026 for the 2025 tax year. They have not changed for 2026. Where a dollar figure differs between the two years, both are given and labelled, because in a year like this one you are usually finishing 2025 and planning 2026 at the same time.
The whole form at a glance
| Line | IRS caption | What it is for |
|---|---|---|
| A–J | Header | Who you are, what you do, and three yes/no questions that matter more than they look |
| 1 | Gross receipts or sales | Everything you were paid, before fees |
| 2 | Returns and allowances | Refunds you issued |
| 3 | Subtract line 2 from line 1 | Arithmetic |
| 4 | Cost of goods sold (from line 42) | Inventory businesses only |
| 5 | Gross profit | Arithmetic |
| 6 | Other income | Business interest, recovered bad debts, fuel tax credits |
| 7 | Gross income | Arithmetic — lines 5 + 6 |
| 8 | Advertising | Marketing, ads, your portfolio site |
| 9 | Car and truck expenses | Mileage or actual costs |
| 10 | Commissions and fees | Platform cuts, payment processing, referral fees |
| 11 | Contract labor | Other freelancers you paid |
| 12 | Depletion | Natural resources. Not you. |
| 13 | Depreciation and section 179 expense deduction | Equipment lasting over a year |
| 14 | Employee benefit programs (other than on line 19) | Only if you have employees |
| 15 | Insurance (other than health) | Liability, professional indemnity, equipment |
| 16a | Interest: Mortgage (paid to banks, etc.) | Business real property mortgage |
| 16b | Interest: Other | Business loan and business credit card interest |
| 17 | Legal and professional services | Accountant, lawyer, tax software |
| 18 | Office expense | Consumables, postage, small supplies |
| 19 | Pension and profit-sharing plans | Employee plans only — not your own |
| 20a | Rent or lease: Vehicles, machinery, and equipment | Equipment rental, leased vehicles |
| 20b | Rent or lease: Other business property | Coworking, studio, storage |
| 21 | Repairs and maintenance | Fixing business property |
| 22 | Supplies (not included in Part III) | Materials consumed in the work |
| 23 | Taxes and licenses | Business licences, payroll tax, some state fees |
| 24a | Travel | Transport and lodging away from home |
| 24b | Deductible meals | 50% limit |
| 25 | Utilities | Business premises only — not your home |
| 26 | Wages (less employment credits) | W-2 employees only |
| 27a | Energy efficient commercial bldgs (attach Form 7205) | Almost certainly blank |
| 27b | Other expenses (from line 48) | The catch-all, itemised in Part V |
| 28 | Total expenses before expenses for business use of home | Add lines 8 through 27b |
| 29 | Tentative profit or (loss) | Line 7 minus line 28 |
| 30 | Expenses for business use of your home | Simplified method or Form 8829 |
| 31 | Net profit or (loss) | The number everything else is built from |
| 32a/32b | At-risk | Only if line 31 is a loss |
| 33–42 | Part III, Cost of Goods Sold | Inventory only |
| 43–47 | Part IV, Information on Your Vehicle | Only if you claim line 9 without Form 4562 |
| 48 | Part V, Total other expenses | Feeds line 27b |
The single most common mistake in this table is line 27. Other expenses are on 27b, not 27a. Line 27a is the energy efficient commercial buildings deduction, which needs Form 7205 and will not apply to you. A lot of published guidance — including, until this update, ours — still says 27a, because that is where other expenses used to live.
The header
Boring but worth doing properly.
Line A, principal business or profession. Plain English: “freelance graphic design”, “web development consulting”. Not a marketing tagline. This is what a human reads first if your return is ever looked at, and a vague answer invites a question.
Line B, business code. A six-digit code from the list in the instructions. Pick the closest match — there is rarely a perfect one, and nobody expects precision. Use the same code every year; a code that jumps around looks like a business that changed and did not say so.
Line C, business name. Leave blank if you trade under your own name. Put your LLC’s name here if you have one.
Line D, EIN. Optional for a sole proprietor with no employees. Worth getting anyway: it is free from the IRS website, takes ten minutes, and means you give clients an EIN instead of your Social Security number on every W-9. That alone justifies it. Note that a single-member LLC’s EIN goes here only if the LLC itself has one — otherwise leave it blank rather than putting your SSN in the box.
Line E, business address. Your home address is fine if that is where you work. You do not need a separate business address, and renting a mailbox to avoid putting your home address here does not change anything about the return.
Line F, accounting method. Cash, unless you have a specific reason otherwise.
This line generates more questions than any other in the header, so, concretely:
- Cash means you count income in the year the money actually arrives and expenses in the year you actually pay them. An invoice you sent in December and were paid for in January is January’s income.
- Accrual means you count income when it is earned and expenses when they are incurred, regardless of when money moves. That December invoice is December’s income even though the cash arrived later.
For almost every freelancer, cash is correct, simpler, and better for cash flow — you are never taxed on money you have not received. Accrual becomes mandatory only if you are required to keep inventory and your average annual gross receipts exceed the small business threshold, which is far above where a service freelancer operates.
Two things people get wrong here. First, the method applies to expenses too — under cash accounting, a business expense you put on a credit card in December is deductible in December, when the charge was made, not when you pay the card off. Second, you cannot switch methods casually. Changing accounting method generally requires filing Form 3115. Pick correctly in year one.
Line G, material participation. Yes, if you actually run the business. This matters more than it looks: answering no puts you into the passive activity loss rules, which limit what you can deduct. It also affects the new-for-2026 $400 minimum QBI deduction, which requires material participation to claim.
Line H, started or acquired this business during the year. Check it in your first year.
Lines I and J, Forms 1099. Line I asks whether you made payments that required you to file a Form 1099; line J asks whether you did or will file them. Answer honestly. If you paid another contractor over the threshold, the answer to I is yes, and answering yes to I and no to J is a flag you have raised on yourself.
The threshold changed. For payments made during 2025 it is $600. For payments made on or after 1 January 2026 it is $2,000, raised by the One Big Beautiful Bill Act and indexed for inflation from 2027. The $600 figure had stood since 1954, so expect to keep seeing it quoted for years after it stopped being right.
Part I: income
Line 1, gross receipts or sales. Everything you were paid for your work. Not what your 1099s add up to — everything, including cash, including clients who never sent a form, and including work paid through platforms.
Report gross here. If a payment processor took fees out before you saw the money, still report the gross amount and deduct the fees further down on line 10. That way the figure matches what the IRS has on its copy of your 1099-K, which prevents a matching notice for no extra tax.
There is also a checkbox on this line for statutory employees — income reported to you on a W-2 with the “Statutory employee” box ticked. Rare, and if it applies to you, you will know, because you will have the W-2 in front of you.
Line 2, returns and allowances. Refunds you issued. Do not quietly net these off line 1 — put them here, so line 1 still reconciles to the 1099-K.
Line 3. Line 1 minus line 2. Arithmetic.
Line 4, cost of goods sold. Comes from line 42 in Part III. Blank for service work.
Line 5, gross profit. Line 3 minus line 4. Arithmetic.
Line 6, other income. Business interest, recovered bad debts, some rebates, and federal or state fuel tax credits. Usually blank. If a client paid you in something other than money — goods, services, a credit — the fair value of what you received belongs in income, and if it does not fit line 1 it goes here.
Line 7, gross income. Lines 5 + 6. Arithmetic.
Part II: expenses
The header of Part II carries an instruction that is easy to miss: enter expenses for business use of your home only on line 30. Your home office does not get spread across lines 21, 25 and 20b. It has one line, near the bottom, and its own rules.
These are the lines that cause trouble.
Line 9, car and truck expenses. Either the standard mileage rate or actual costs.
2026 has two mileage rates — 72.5¢ per mile from 1 January to 30 June, and 76¢ from 1 July to 31 December, after the IRS raised it mid-year. So this line needs a split calculation this year: count the business miles in each half separately and add the two results. For the 2025 return you are filing now, the rate is a flat 70¢.
If you claim mileage and are not otherwise required to file Form 4562, you must complete Part IV of Schedule C to describe the vehicle.
Line 10, commissions and fees. This is the line most freelancers have and most guides skip. It covers money paid out as a cut of the work rather than as a service you bought:
- Platform commissions — Upwork’s percentage, Fiverr’s cut, Etsy’s transaction fee
- Payment processing fees — Stripe, PayPal, Square
- Referral fees and finder’s fees
- Sales commissions you paid someone
Payment processing has no line of its own, so it can defensibly sit on line 10 or on line 27b as “merchant processing fees”. Line 10 is the more natural home. What actually matters is that you deduct it and report gross on line 1 — not that you netted the two and reported neither.
Line 11, contract labor. Payments to other contractors you hired. If you paid anyone over the 1099 threshold for the year, you also had to issue them a 1099-NEC by January 31 — which is what lines I and J in the header are asking about.
Line 13, depreciation and section 179. Equipment expected to last more than a year. Section 179 lets you deduct the whole cost in year one rather than spreading it, which is usually what you want, and the 2026 limit is $2,560,000 with a phase-out starting at $4,090,000 of total equipment placed in service — numbers no freelancer will ever approach, which is the useful thing to know about them. 100% bonus depreciation is also available for qualifying property acquired and placed in service after 19 January 2025. Either route requires Form 4562.
Line 15, insurance. Business insurance — liability, professional indemnity, equipment. Not your health insurance. That goes on your 1040, not here, and putting it in the wrong place is one of the most common Schedule C errors. See below.
Line 16b, interest. Interest on a business loan or on a credit card used for business purchases. If a card is mixed personal and business, only the business share of the interest is deductible, which is a good practical argument for a separate card.
Line 17, legal and professional services. Your accountant, your lawyer, tax software. The fee for preparing Schedule C itself is deductible here. The portion of a tax bill that covers your personal 1040 is not.
Line 18, office expense. Consumables and small supplies — paper, postage, printer ink. Software subscriptions usually sit here or on line 27b; pick one and be consistent.
Line 19, pension and profit-sharing plans. For plans you provide to employees. Your own SEP-IRA or solo 401(k) contribution does not go here. It goes on Schedule 1 of your 1040. Putting your own retirement contribution on line 19 understates your net profit and therefore understates your self-employment tax, which is a real error rather than an aggressive position.
Line 20b, rent or lease of other business property. Coworking space, studio rent, storage. Not your home office — that is line 30.
Line 22, supplies. Materials consumed in doing the work, as distinct from office consumables on line 18. A photographer’s memory cards, a maker’s raw materials. The line between 18 and 22 is genuinely blurry and nothing turns on which you pick, as long as the expense is claimed once.
Line 23, taxes and licenses. Business licences, permits, the employer half of payroll tax if you have staff, and state fees that are genuinely taxes on the business. Your state’s LLC annual report fee generally belongs here. Your own self-employment tax does not — that is not a business expense, and its deductible half is handled on Schedule 1.
Line 24a, travel. Transport, lodging and incidentals on business trips away from home overnight. Commuting to your own office or coworking space is not travel; it is commuting, and it is not deductible.
Line 24b, deductible meals. Deductible at 50%, and only with a genuine business purpose. Note the form wants you to apply the limit before entering the amount — check your software is not halving it a second time. Meals alone while working locally are not deductible at all.
Line 25, utilities. Electricity, gas, water and business phone lines for business premises. Home utilities belong in the home office calculation on line 30, not here. A second phone line used only for business is a legitimate line 25 entry; your normal mobile bill is a partial-use expense better handled on 27b with a business-use percentage.
Line 27b, other expenses. The catch-all, itemised line by line in Part V on page 2 and totalled on line 48. Software subscriptions, professional memberships, continuing education, bank fees, business phone and internet, industry publications. For most freelancers this is the largest and most detailed line on the form, and Part V is where the actual detail lives.
Two things to know about Part V. It has limited room, so group sensibly rather than listing forty individual app subscriptions. And the descriptions you write there are the most human-readable part of the whole return — “software subscriptions” reads better than “misc”, and “misc” on a four-figure amount is the sort of thing that invites a letter.
Line 30: the home office
Either the simplified method — $5 per square foot, capped at 300 square feet, so $1,500 maximum — or actual expenses via Form 8829.
The simplified method is usually right for a spare-room office and takes minutes. Form 8829 wins when your rent or mortgage interest is high and the room is a meaningful share of your home, but it means allocating rent, utilities, insurance and repairs by square footage and keeping the records for it.
The constraint people trip over: line 30 cannot create a loss. It is limited to your tentative profit on line 29. Under the actual-expense method the disallowed excess carries forward to a future year; under the simplified method it is simply lost. If line 29 is already at or near zero, the simplified method gives you nothing at all this year.
The space also has to be used regularly and exclusively for business. A desk in the corner of the bedroom qualifies if that corner is only ever a desk. The dining table you also eat at does not.
Line 31: the line that matters
Line 31 is your net profit. Everything above exists to produce it.
This single number then:
- flows to Schedule SE to calculate self-employment tax
- flows to Form 1040 as income
- forms the basis of your QBI deduction
- sets your retirement contribution limit
An error anywhere above compounds through all four. This is why the health insurance and retirement mistakes matter more than they look: both would reduce line 31, and line 31 is what self-employment tax is charged on.
Line 32, at risk. Only relevant if line 31 is a loss. For a freelancer funding the business out of their own pocket, 32a — all investment is at risk — is the answer. Check 32b and you need Form 6198 and your loss may be limited.
Part III: cost of goods sold (lines 33–42)
Skip it entirely if you sell services. It exists for businesses that hold inventory — resale, manufacturing, physical products.
If you do hold inventory, the shape is: opening inventory (35), plus purchases (36), plus cost of labour (37), plus materials and supplies (38), plus other costs (39), totalled at 40, minus closing inventory (41), giving cost of goods sold at 42, which carries back to line 4. Line 37 carries an explicit warning worth repeating: do not include any amounts paid to yourself.
Part IV: information on your vehicle (lines 43–47)
Complete this only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562. It asks when the vehicle went into service (43), your business, commuting and other miles for the year (44a–c), whether the vehicle was available for personal use (45), whether you have another vehicle (46), and whether you have evidence to support the deduction and whether that evidence is written (47a and 47b).
Line 47 is the one to read twice. It is asking, on the form, whether you kept a mileage log. Answering yes without one is the kind of small untruth that becomes a large problem in an audit. A contemporaneous log — even an app that runs in the background — is the whole defence for this deduction.
Part V: other expenses (line 48)
List each category of other expense with a description and an amount. The total goes on line 48 and carries up to line 27b.
Where common expenses go
| Expense | Line |
|---|---|
| Website hosting and domain | 8, Advertising |
| Portfolio site, business cards, ads | 8, Advertising |
| Mileage or vehicle costs | 9, Car and truck |
| Stripe / PayPal / Square fees | 10, Commissions and fees |
| Upwork, Fiverr, Etsy platform cuts | 10, Commissions and fees |
| Subcontractors and other freelancers | 11, Contract labor |
| Laptop, camera, desk over $2,500 | 13, Depreciation / §179 |
| Professional indemnity, liability cover | 15, Insurance |
| Business loan or business card interest | 16b, Interest |
| Accountant, lawyer, tax software | 17, Legal and professional |
| Paper, postage, printer ink | 18, Office expense |
| Coworking membership, studio rent | 20b, Rent or lease |
| Equipment rental | 20a, Rent or lease |
| Raw materials consumed in the work | 22, Supplies |
| LLC annual report fee, business licence | 23, Taxes and licenses |
| Flights and hotels for a business trip | 24a, Travel |
| Client meals, at 50% | 24b, Deductible meals |
| Software subscriptions | 18 or 27b, consistently |
| Business phone and internet share | 27b, Other expenses |
| Professional memberships, publications | 27b, Other expenses |
| Courses and conferences | 27b, Other expenses |
| Bank fees on a business account | 27b, Other expenses |
| Home office | 30, and only 30 |
| Your health insurance | Not here — Schedule 1 |
| Your SEP-IRA or solo 401(k) | Not here — Schedule 1 |
| Your self-employment tax | Not here — Schedule 1, half of it |
A worked example
A freelance developer, 2026, single, working from a spare room. Invoices totalling $96,400, of which $2,600 was taken by Stripe before the money landed, so $93,800 arrived in the bank. One refunded project, $1,200. A subcontractor paid $6,000. A $2,400 laptop. Coworking two days a week at $180 a month. $1,900 of software. Business insurance $640. Accountant $900. 1,400 business miles, all in the second half of the year.
| Line | Amount | |
|---|---|---|
| 1 | Gross receipts | $96,400 |
| 2 | Returns and allowances | $1,200 |
| 3 | $95,200 | |
| 7 | Gross income | $95,200 |
| 9 | Car and truck — 1,400 mi × 76¢ | $1,064 |
| 10 | Commissions and fees — Stripe | $2,600 |
| 11 | Contract labor | $6,000 |
| 13 | Depreciation / §179 — laptop | $2,400 |
| 15 | Insurance | $640 |
| 17 | Legal and professional | $900 |
| 20b | Rent or lease — coworking | $2,160 |
| 27b | Other expenses — software | $1,900 |
| 28 | Total expenses | $17,664 |
| 29 | Tentative profit | $77,536 |
| 30 | Home office — simplified, 120 sq ft | $600 |
| 31 | Net profit | $76,936 |
Note what line 1 is: $96,400, not $93,800. The Stripe fees are deducted on line 10 rather than netted off the top. The tax outcome is identical either way — and the version that reports gross is the one that reconciles to the 1099-K the IRS already holds.
Note also that the coworking membership is on 20b and the home office is on 30. Having both is fine and common; what is not fine is putting either one on the other’s line.
Line 31 of $76,936 is then what Schedule SE charges self-employment tax on, what flows to the 1040, and what the QBI deduction and the retirement contribution limit are computed from.
Two things that are not on Schedule C
Worth knowing so you do not go looking for them:
- Health insurance premiums — Schedule 1, above the line
- Retirement contributions (SEP-IRA, solo 401(k)) — Schedule 1, above the line
Both reduce your income tax but not your self-employment tax, because self-employment tax is calculated from Schedule C line 31, before either of them. The deductible half of your self-employment tax is also a Schedule 1 item, for the same reason.
This is the single most consequential thing to understand about the form. A deduction on Schedule C saves you income tax and 15.3% self-employment tax. The same dollar on Schedule 1 saves you income tax only. That is why the placement matters, and why moving a Schedule 1 item onto Schedule C to save the 15.3% is not a grey area.
What people get wrong
Other expenses on 27a instead of 27b. They swapped. 27a is now the energy efficient commercial buildings deduction and needs Form 7205.
Reporting net instead of gross. If Stripe processed $82,300 and paid you $80,000 after fees, report $82,300 on line 1 and $2,300 on line 10. Reporting $80,000 produces the same tax but creates a mismatch with the IRS’s copy of your 1099-K.
Health insurance on line 15. It belongs on Schedule 1 of your 1040 as an above-the-line deduction, not as a Schedule C business expense.
Your own retirement contribution on line 19. Line 19 is for plans you provide to employees. Yours is Schedule 1.
Home office expenses scattered across the form. Rent on 20b, utilities on 25, repairs on 21 — all wrong if they relate to your home. Part II says it in its own header: home only on line 30.
Claiming a loss year after year. A business that never makes money starts to look like a hobby. The rough guideline is profit in three of five years; miss that and you may have to demonstrate a genuine profit motive.
Personal expenses. A laptop used 70% for business is 70% deductible, not 100%.
Forgetting income with no form attached. Cash and small clients are still income — and this gets more important from 2026, not less. With the 1099 threshold rising from $600 to $2,000, far more of your income will arrive with no form behind it. The reporting obligation is unchanged; only the paperwork trail thinned out.
Answering yes to line I and no to line J. You have told the IRS you owed someone a 1099 and did not file it.
Then check the number
Once you have a realistic net profit, the calculator below shows what it costs — the self-employment tax, the federal income tax, the quarterly payments, and what to set aside from each payment you receive.