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ResourcesAccounting and Taxes

8 Common Myths About the Schedule C Form

Accounting and TaxesFebruary 28, 2023

For self-employed people, the Schedule C tax form is one of the most important parts of filing annual taxes. This form helps calculate your profit and loss, which is vital for determining self-employment taxes and required by the IRS. 

However, there are many misconceptions about the Schedule C form—what it is, who needs to file it, and more. In this article, we’ll dispel some of the most common myths and misconceptions about Schedule C so you can file your taxes confidently.

Myth #1: The Schedule C form is only for people who run a large, profitable business.

While larger businesses may be more lucrative to the IRS, trust us—they’ll happily take even the smallest freelancer’s tax money. While there is technically a minimum income where you won’t be required to pay self-employment taxes, the IRS still wants everyone that earns any self-employed income to report it on a Schedule C form, no matter how little it is.

What constitutes self-employed income? Any income or losses from a business you operated or a profession you practiced as a sole proprietor. This covers solopreneurs, freelancers, independent contractors, and small business owners.

Myth #2: The Schedule C form is only for people in certain industries.

Schedule C has nothing to do with industry—it applies to self-employed income from any source. Even money you make from illegal activities must be reported on Schedule C. No; we’re not kidding

This means freelancers, consultants, and small business owners in every industry need to fill out and file a Schedule C—whether you’re a marketing consultant, a freelance app developer, or operate a physical retail store.

Myth #3: You only need to file a Schedule C tax form if you made a profit.

The answer to this one is in the form’s name: Profit or Loss From Business. Schedule C must be filled out and filed regardless of whether you actually made a net profit. In fact, there are dedicated lines and instructions for situations where you end up with a net loss, such as line 32. 

Myth #4: You can estimate your business expenses when completing the Schedule C form.

You must be as accurate as possible when reporting your business expenses on the Schedule C form. If you underestimate, you could be leaving significant tax deductions, and thus money, on the table. On the other hand, if you overestimate your expenses, you could get in trouble with the IRS. Neither of these scenarios is ideal.

To help ensure accuracy, you should keep detailed records and receipts of all expenses throughout the year. This doesn’t just help with filling out tax forms—it also ensures you have thorough records in the event of an audit. Finally, accurate records allow you to track your business's financial performance better throughout the year.

Myth #5: All business expenses are deductible.

Contrary to popular belief, not all business expenses are tax deductible. While it’s true that many, if not most, expenses are deductible, you don’t want to assume—these sorts of things can seem harmless at the moment but cause problems if you come up for an audit.  

Fortunately, you don’t need to guess. The IRS outlines specific criteria for what is and isn’t a deductible expense. For example, the following basic categories are not deductible:

  • Personal expenses, such as a personal cell phone or vehicle.

  • Political contributions.

  • Commuting expenses. The commute to and from your office or business is not considered a deductible expense. That said, these are deductible expenses if you travel to visit clients or for work-related meetings.

  • Expenses for additional travelers. You can't deduct their travel costs if you bring a spouse or friend on a work trip. 

You can find the full breakdown of what is and isn’t a deductible expense on the IRS website. However, if you have specific questions about deductible expenses, it’s important to consult a tax professional.

Myth #6: You can only claim expenses for items used solely for business purposes.

This one seems simple enough on the surface—you can only claim expenses used full-time for business, right? However, in truth, things are a bit more flexible than that. 

You can claim expenses used for business and personal purposes as long as the primary use is business. So, for example, if you have a business vehicle that you occasionally use for personal purposes, you can still deduct that vehicle's expenses. 

The key here is whether the majority of use is business or personal. If you only use the vehicle for business occasionally but for personal use every day, it’s not a valid business expense. 

Myth #7: You don’t need to worry about the Schedule C form if you have a part-time side business.

If your business only operates on the weekends or the evenings, or you only freelance when you need the extra money, you might think that you don’t need to fill out a Schedule C. However, even if your self-employed income comes from a part-time side hustle, you still need to report the income and expenses on the Schedule C form. There’s no distinction for part-time or side businesses versus full-time gigs when it comes to reporting self-employed income. 

Myth #8: Taking the home office deduction makes you more likely to be audited.

There’s a pervasive myth that taking a home office deduction will instantly trigger an audit. There’s a grain of truth to this—the home office deduction has a history of misuse, so there was a period where it could open you up to additional scrutiny (and potentially an audit). 

However, these days, home offices are so common that there’s really nothing special about them that would trigger an audit. In fact, in 2019, over 40% of Schedule C filers claimed a home office deduction. As long as the deduction is legitimate, there’s no reason to be concerned about a potential audit.

File confidently with Found

Whether this is your first time filing a Schedule C or you’ve been doing it for years, myths and misconceptions can impact your experience. Tax time is stressful enough without misinformation throwing you off. The truth is that Schedule C (and most other self-employed tax forms) are a lot less scary than they seem.

You can make things even easier for yourself by using Found’s tax tools. When you use Found, your income and expenses are automatically tracked and entered into a pre-filled Schedule C form, saving you time and money when filing taxes. Get started for free today.

The information on this website is not intended to provide, and should not be relied on, for tax advice.

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