Schedule C

Who files it

If you run your contracting business as a sole proprietor, Schedule C is where the business shows up on your federal return. You report your income and expenses on it, and the result, a net profit or a net loss, carries over to your personal Form 1040 ¹.

A limited liability company owned by one person is treated as a sole proprietorship for federal income tax unless the owner elects to have it taxed as a corporation ¹. So an LLC with one owner usually files Schedule C too. Partnerships and corporations file their own returns instead.

What goes on it

The form follows the same logic as a profit and loss statement: money in, costs out, profit at the bottom.

• Income: what customers paid you for the work, counted under the accounting method your return uses.
• Cost of goods sold: a section of its own for direct costs of what you sell. Which job costs go here and which go in the expense lines depends on your accounting method, so work it out with your CPA. See cost of goods sold.
• Expenses: line by line for vehicles, insurance, supplies, rent, utilities, wages and more. Payments to people you don't treat as employees, such as subs, go on the contract labor line ².
• Net profit or loss: income minus everything above.

Why the bottom line matters twice

Schedule C profit is subject to income tax, and it's also the starting point for self-employment tax, which covers your Social Security and Medicare as a business owner. If your net earnings from self-employment are $400 or more, you figure that tax on Schedule SE ¹. The rate is 15.3% (12.4% Social Security, 2.9% Medicare) ³. It applies to 92.35% of your net earnings ³, and the Social Security part stops at a yearly earnings cap.

Example: A pressure washing owner brings in $90,000 in a year and has $55,000 of deductible costs, so Schedule C shows $35,000 of net profit. Self-employment tax is figured on 92.35% of that, about $32,300, and 15.3% of $32,300 is about $4,950, before any income tax. The numbers are made up for illustration; your CPA does the real calculation.

That's why "I'll deal with taxes in April" catches new owners. Nobody withholds tax from your job payments, so set money aside from every deposit and ask your CPA whether you should be paying estimated tax during the year.

Common mistakes

• Treating every deposit as income in the year it lands without asking how your accounting method handles customer deposits for unfinished work.
• Mixing personal and business spending. A separate business account makes every line on Schedule C easier to support.
• Paying subs without the paperwork. If you pay a sub $2,000 or more in a calendar year, payments made after December 31, 2025 are generally reported on Form 1099-NEC ⁴. Collect a W-9 before the first payment. Whether that person is really a sub is a separate question; see independent contractor.
• Pricing from take-home instead of profit. Schedule C profit is before self-employment and income tax. Build those taxes into your labor rate, not just your wages.

How it connects

Your monthly P&L is the management report; Schedule C is the tax version of the same year. Keep the categories close and your CPA can map one to the other quickly. How to read a profit and loss statement covers the monthly side.