Schedule C

Part I: Income

In Part I, total up your business income:

Start with gross receipts (total sales), subtract returns and allowances. If you sell products, subtract cost of goods sold (Part III) to find gross profit. Add any other business income not reported elsewhere in Part I.

Part II: Expenses

This is where your deductions live. The IRS calls these your ordinary and necessary business expenses.

Beginning and ending inventory, purchases (minus personal use), labor costs (not payments to yourself), and materials, supplies, and other direct production costs. COGS lowers taxable profit, so keep good records.

Part III: Costs of Goods Sold

If you sell physical products, Part III calculates the cost of goods sold (COGS). This commonly includes:

Beginning and ending inventory, purchases (minus personal use), labor costs (not payments to yourself), and materials, supplies, and other direct production costs. COGS lowers taxable profit, so keep good records.

Part IV: Information on Your Vehicle

Part IV supports your vehicle deduction, if applicable, and tracks:

List when you began using the vehicle for business, total miles driven vs. business miles (commuting doesn’t count), and whether you have written evidence that meets IRS record keeping requirements.

Part V: Other expenses

Part V lets you list other expenses that don’t fit neatly elsewhere. Be specific and accurate to avoid setting off IRS red flags. Examples of expenses listed here might include::

Deductions for amortization, bad debts, business startup costs, sound recording expenses, and technology or software tools used in your business.