if you're a sole proprietor or single-member LLC, Schedule C is where you report business income and expenses on your personal tax return. it's the form that determines your business profit (or loss).
the core idea: you list what you earned and what you spent on the business. the difference is your taxable business income.
business vs personal
the main question for every expense: is this a business expense?
some are obvious:
- AWS hosting bill → 100% business
- domain registration → 100% business
- office supplies for your workspace → 100% business
some are clearly personal:
- groceries → personal
- netflix → personal
the tricky ones are mixed-use. you use the same thing for business and personal:
- phone: you make business calls and personal calls → maybe 70% business
- internet: you work from home but also stream movies → maybe 60% business
- home office: one room of your apartment is your office → calculate by square footage
for mixed-use expenses, you set a business percentage. your $100/month internet bill at 60% business = $60/month deductible expense.
setting rules per vendor
instead of marking every transaction individually, set rules per counterparty (vendor):
- business? - is this vendor a business expense? set once, applies to all future transactions from them
- business % - what percentage is business use? 100% for purely business vendors, lower for mixed-use
- schedule c line - which expense category on the form. this determines where the expense shows up on your tax return
example: you set AT&T as business=yes, 80%, Line 25 (utilities). every AT&T charge going forward automatically gets tagged as 80% business utility expense.
when you don't need to worry
if your business has its own dedicated bank account and credit card with zero personal spending, everything in those accounts is 100% business. you mainly need business % for mixed-use situations.
common mistakes
- deducting personal expenses as business (IRS audits this)
- forgetting mixed-use percentages (claiming 100% on a phone you also use personally)
- not tracking at all and guessing at tax time
- over-categorizing: not every coffee is a business meal
related
- schedule c lines reference - which line to use for each expense type