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A Schedule C is the tax form people use to report self employment income on their tax return. It is a form that gets added to your 1040 form. If you are a sole proprietor you can use a schedule C.

What does a Schedule C do?

Schedule C calculates your net income from your small business. You enter your sales at the top and then your expenses below that. When you subtract your expenses from your sales, you get your “net income”. Your net income is used to calculate your self employment taxes and your income taxes.

What goes on a Schedule C?

Part I

Part I calculates your gross income. Gross income is all your sales and revenue before you subtract any expenses.

Line 1 is your gross receipts. Depending on what your business is and how you get paid, there are different ways to calculate this number.

If your business sells items to lots of different customers thorough a webstore or a marketplace like Etsy or Amazon you can add up your bank deposits to get this number. If you have a physical store that sells items, adding up your bank deposits will also give you this number. There are also a lot of Point of Sale systems that will track this number and give a report you can use.

Hair stylists, massage therapists, and other businesses like them can usually just add up all of their bank deposits to get this number.

If you are an independent contractor and you get a 1099, or several 1099’s, add up your 1099’s to get your gross receipts. If you also have income that is not on a 1099, add this to your 1099 total.

Part II

Part II of Schedule C is where you enter your expenses.

Your expenses are all of the things you spent money on to earn the money you made in Part 1. The schedule has lines for expenses such as: advertising, rent, repairs and maintenance, legal fees, travel, and utilities.

There is also a line for “Other expenses”. Line 27 is the total of your expenses that you entered in Part V. Any expense you have that does not fit one of the categories in Part II goes in Part V and the total goes on line 27a. (I don’t know why they don’t just let you list everything in Part II)

After you add up all of your expenses and put that total on Line 28, you subtract that number from your gross receipts. This your “Tentative profit or loss” and gets entered on Line 29. It’s tentative because if you have a home office, that expense gets entered on line 30.

After you subtract your home office, if you have one, the number you get is your net profit or net loss. If it’s a net profit, you pay taxes on it. If it’s a net loss you may be able to deduct it from any other income you have.

Click here for Parts III, IV, and V of Schedule C

Bookkeeping and accounting are two closely related yet distinct aspects of financial management within an organization. While they both involve recording and analyzing financial transactions, there are fundamental differences between bookkeeping and accounting in terms of their scope, focus, and overall objectives.

Bookkeeping primarily involves the process of recording financial transactions in a systematic and organized manner. It focuses on the day-to-day tasks of maintaining financial records, such as recording invoices, receipts, payments, and other transactions. Bookkeepers are responsible for ensuring accuracy and completeness in the recording of financial data. They typically use tools like journals, ledgers, and spreadsheets to organize and track financial information.

Accounting, on the other hand, encompasses a broader set of activities that go beyond mere data recording. It involves the interpretation, analysis, and communication of financial information to facilitate decision-making and financial management. Accountants use the data provided by bookkeepers to prepare financial statements, such as income statements, balance sheets, and cash flow statements. They also perform financial analysis, budgeting, forecasting, and tax planning to provide valuable insights into the financial health and performance of an organization.

While bookkeeping focuses on the accurate and timely recording of financial transactions, accounting involves a more comprehensive understanding and interpretation of financial data. Accountants analyze the recorded information to identify trends, patterns, and anomalies that may impact the organization’s financial position. They ensure compliance with relevant financial regulations and standards and provide financial reports that are crucial for management, investors, and other stakeholders.

Another significant difference lies in the required skills and qualifications. Bookkeeping typically requires strong attention to detail, organizational skills, and proficiency in bookkeeping software and tools. In contrast, accounting demands a broader knowledge of financial principles, regulations, and reporting standards. Accountants often hold professional certifications, such as Certified Public Accountant (CPA) or Chartered Accountant (CA), to demonstrate their expertise and credibility in the field.

In summary, bookkeeping is the foundation of the accounting process, focusing on the accurate recording of financial transactions. Accounting encompasses a broader range of activities, including financial analysis, reporting, and decision-making. While bookkeeping is concerned with the organization and maintenance of financial records, accounting provides a deeper understanding of financial data and its implications for the organization as a whole. Both bookkeeping and accounting are essential for effective financial management, and they work in tandem to provide valuable insights for informed decision-making.