Instructions for IRS Form 1040 Schedule C "Profit or Loss From Business"

This document contains official instructions for IRS Form 1040 Schedule C, Profit or Loss From Business - a tax form released and collected by the Internal Revenue Service (IRS), a subdivision of the U.S. Department of the Treasury. An up-to-date fillable IRS Form 1040 Schedule C is available for download through this link.

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Department of the Treasury
Internal Revenue Service
2020 Instructions for Schedule C
Profit or Loss
Use Schedule C (Form 1040) to report income or (loss) from a business you operated
or a profession you practiced as a sole proprietor. An activity qualifies as a business if
From Business
your primary purpose for engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For example, a sporadic activi-
ty, not-for-profit activity, or a hobby does not qualify as a business. To report income
from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8.
Also, use Schedule C to report (a) wages and expenses you had as a statutory em-
ployee, (b) income and deductions of certain qualified joint ventures, and (c) certain
amounts shown on a Form 1099, such as Form 1099-MISC, Form 1099-NEC, and
Form 1099-K. See the instructions on your Form 1099 for more information about
what to report on Schedule C.
You may be subject to state and local taxes and other requirements such as business
licenses and fees. Check with your state and local governments for more information.
Section references are to the Internal
or do you need a free publication or
Schedule SE (Form 1040) to pay
Revenue Code unless otherwise noted.
form? SB/SE serves taxpayers who file
self-employment tax on income from
Form 1040, Form 1040-SR, Schedules
any trade or business.
Future Developments
C, E, F, or Form 2106, as well as small
Form 3800 to claim any of the
business taxpayers with assets under $10
general business credits.
For the latest information about devel-
million. For additional information, visit
Form 4562 to claim depreciation
opments related to Schedule C and its
the Small Business and Self-Employed
(including the special allowance) on
instructions, such as legislation enacted
Tax Center at IRS.gov/SmallBiz.
assets placed in service in 2020, to claim
after they were published, go to
IRS.gov/
amortization that began in 2020, to
Gig Economy Tax Center. The gig (or
ScheduleC.
make an election under section 179 to
on-demand, sharing, or access) economy
What's New
expense certain property, or to report
refers to an activity where people earn
information on listed property.
income providing on-demand work,
Standard mileage rate. The business
Form 4684 to report a casualty or
services, or goods. Visit
IRS.gov/Gig
to
standard mileage rate for 2020 de-
theft gain or (loss) involving property
get more information about the tax con-
creased to 57.5 cents per mile.
used in your trade or business or
sequences of participating in the gig
income-producing property.
Excess business loss limitation. The
economy.
Form 4797 to report sales,
excess business loss limitation under
General
exchanges, and involuntary conversions
section 461(l) has been retroactively re-
(not from a casualty or theft) of trade or
pealed and will not apply for 2020.
Instructions
business property.
The Families First Coronavirus Re-
Form 6198 to apply a limitation to
sponse Act (FFCRA). FFCRA pro-
Other Schedules and Forms
your loss if you have a business loss and
vides businesses with tax credits to cov-
You May Have To File
you have amounts invested in the
er certain costs of providing employees
business for which you are not at risk.
with required paid sick leave and expan-
Schedule A (Form 1040) to deduct
Form 6252 to report income from
ded family and medical leave reasons re-
interest, taxes, and casualty losses not
an installment agreement.
lated to the coronavirus. Under the
related to your business.
Form 7202 to figure a refundable
FFCRA, the amount of these credits is
Schedule E (Form 1040) to report
credit for certain self-employed persons
included in the recipient employers’
rental real estate and royalty income or
impacted by the coronavirus.
gross income. Report these amounts as
(loss) that is not subject to
Form 8582 to apply a limitation to
“other income” on line 6. For more in-
self-employment tax.
your loss from passive activities.
formation about these credits, including
Schedule F (Form 1040) to report
Form 8594 to report certain
FAQs, visit
IRS.gov/coronavirus/new-
profit or (loss) from farming.
purchases or sales of groups of assets
employer-tax-credits.
Schedule J (Form 1040) to figure
that constitute a trade or business.
your tax by averaging your farming or
Form 8824 to report like-kind
Reminders
fishing income over the previous 3
exchanges.
years. Doing so may reduce your tax.
Form 8829 to claim actual
Small Business and Self-Employed
expenses for business use of your home.
(SB/SE) Tax Center. Do you need help
with a tax issue or preparing your return,
C-1
Jan 13, 2021
Cat. No. 24329W
Department of the Treasury
Internal Revenue Service
2020 Instructions for Schedule C
Profit or Loss
Use Schedule C (Form 1040) to report income or (loss) from a business you operated
or a profession you practiced as a sole proprietor. An activity qualifies as a business if
From Business
your primary purpose for engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For example, a sporadic activi-
ty, not-for-profit activity, or a hobby does not qualify as a business. To report income
from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8.
Also, use Schedule C to report (a) wages and expenses you had as a statutory em-
ployee, (b) income and deductions of certain qualified joint ventures, and (c) certain
amounts shown on a Form 1099, such as Form 1099-MISC, Form 1099-NEC, and
Form 1099-K. See the instructions on your Form 1099 for more information about
what to report on Schedule C.
You may be subject to state and local taxes and other requirements such as business
licenses and fees. Check with your state and local governments for more information.
Section references are to the Internal
or do you need a free publication or
Schedule SE (Form 1040) to pay
Revenue Code unless otherwise noted.
form? SB/SE serves taxpayers who file
self-employment tax on income from
Form 1040, Form 1040-SR, Schedules
any trade or business.
Future Developments
C, E, F, or Form 2106, as well as small
Form 3800 to claim any of the
business taxpayers with assets under $10
general business credits.
For the latest information about devel-
million. For additional information, visit
Form 4562 to claim depreciation
opments related to Schedule C and its
the Small Business and Self-Employed
(including the special allowance) on
instructions, such as legislation enacted
Tax Center at IRS.gov/SmallBiz.
assets placed in service in 2020, to claim
after they were published, go to
IRS.gov/
amortization that began in 2020, to
Gig Economy Tax Center. The gig (or
ScheduleC.
make an election under section 179 to
on-demand, sharing, or access) economy
What's New
expense certain property, or to report
refers to an activity where people earn
information on listed property.
income providing on-demand work,
Standard mileage rate. The business
Form 4684 to report a casualty or
services, or goods. Visit
IRS.gov/Gig
to
standard mileage rate for 2020 de-
theft gain or (loss) involving property
get more information about the tax con-
creased to 57.5 cents per mile.
used in your trade or business or
sequences of participating in the gig
income-producing property.
Excess business loss limitation. The
economy.
Form 4797 to report sales,
excess business loss limitation under
General
exchanges, and involuntary conversions
section 461(l) has been retroactively re-
(not from a casualty or theft) of trade or
pealed and will not apply for 2020.
Instructions
business property.
The Families First Coronavirus Re-
Form 6198 to apply a limitation to
sponse Act (FFCRA). FFCRA pro-
Other Schedules and Forms
your loss if you have a business loss and
vides businesses with tax credits to cov-
You May Have To File
you have amounts invested in the
er certain costs of providing employees
business for which you are not at risk.
with required paid sick leave and expan-
Schedule A (Form 1040) to deduct
Form 6252 to report income from
ded family and medical leave reasons re-
interest, taxes, and casualty losses not
an installment agreement.
lated to the coronavirus. Under the
related to your business.
Form 7202 to figure a refundable
FFCRA, the amount of these credits is
Schedule E (Form 1040) to report
credit for certain self-employed persons
included in the recipient employers’
rental real estate and royalty income or
impacted by the coronavirus.
gross income. Report these amounts as
(loss) that is not subject to
Form 8582 to apply a limitation to
“other income” on line 6. For more in-
self-employment tax.
your loss from passive activities.
formation about these credits, including
Schedule F (Form 1040) to report
Form 8594 to report certain
FAQs, visit
IRS.gov/coronavirus/new-
profit or (loss) from farming.
purchases or sales of groups of assets
employer-tax-credits.
Schedule J (Form 1040) to figure
that constitute a trade or business.
your tax by averaging your farming or
Form 8824 to report like-kind
Reminders
fishing income over the previous 3
exchanges.
years. Doing so may reduce your tax.
Form 8829 to claim actual
Small Business and Self-Employed
expenses for business use of your home.
(SB/SE) Tax Center. Do you need help
with a tax issue or preparing your return,
C-1
Jan 13, 2021
Cat. No. 24329W
Form 8990 to determine whether
nership agreement. You generally have
your separate Schedule C or F. Each of
your business interest deduction is
to file Form 1065 instead of Schedule C
you also may need to file a separate
limited.
for your joint business activity; howev-
Schedule SE to pay self-employment
Form 8995 or 8995-A to claim a
er, you may not have to file Form 1065
tax. If the business was taxed as a part-
deduction for qualified business income.
if either of the following applies.
nership before you made the election,
You and your spouse elect to be
the partnership will be treated as termi-
Single-member limited liability com-
treated as a qualified joint venture. See
nating at the end of the preceding tax
pany (LLC). Generally, a single-mem-
Qualified Joint Venture
next.
year. For information on how to report
ber domestic LLC is not treated as a sep-
You and your spouse wholly own
the termination of the partnership, see
arate entity for federal income tax
the unincorporated business as commun-
Pub. 541.
purposes. If you are the sole member of
ity property and you treat the business as
a domestic LLC, file Schedule C (or
Revoking the election. The election
a sole proprietorship. See
Community
Schedule E or F, if applicable) unless
can be revoked only with the permission
Income, later.
you have elected to treat the domestic
of the IRS. However, the election re-
Otherwise, use Form 1065. See Pub. 541
LLC as a corporation. See Form 8832
mains in effect only for as long as you
for information about partnerships.
for details on making this election and
and your spouse continue to meet the re-
for information about the tax treatment
quirements to make the election. If you
Qualified Joint Venture
of a foreign LLC.
and your spouse fail to meet the require-
ments for any year, you will need to
You and your spouse can elect to treat
Single-member limited liability com-
make a new election to be treated as a
an unincorporated business as a quali-
panies (LLCs) with employees. A sin-
qualified joint venture in any future
fied joint venture instead of a partner-
gle-member LLC must file employment
year.
ship if you:
tax returns using the LLC's name and
Each materially participate in the
employer identification number (EIN)
Employer
identification
number
business (see
Material
participation, lat-
rather than the owner's name and EIN,
(EIN). You and your spouse do not
er, in the instructions for line G),
even if the LLC is not treated as a sepa-
need to obtain an EIN to make the elec-
Are the only owners of the busi-
rate entity for federal income tax purpo-
tion. But you may need an EIN to file
ness, and
ses.
other returns, such as employment or ex-
File a joint return for the tax year.
cise tax returns. To apply for an EIN,
Heavy highway vehicle use tax. If you
see the Instructions for Form SS-4 or
Making the election will allow you to
use certain highway trucks, truck-trail-
visit IRS.gov/EIN.
avoid the complexity of Form 1065, but
ers, tractor-trailers, or buses in your
still give each of you credit for social se-
trade or business, you may have to pay a
Rental real estate business. If you and
curity earnings on which retirement ben-
federal highway motor vehicle use tax.
your spouse make the election for your
efits, disability benefits, survivor bene-
See the Instructions for Form 2290 to
rental real estate business, you must
fits, and insurance (Medicare) benefits
find out if you must pay this tax and vis-
each report your share of income and
are based. In most cases, this election
it
IRS.gov/Trucker
for the most recent
deductions on Schedule E. Rental real
will not increase the total tax owed on
developments.
estate income generally is not included
the joint return.
in net earnings from self-employment
Information returns. You may have to
subject to self-employment tax and gen-
Jointly owned property. You and your
file information returns for wages paid
erally is subject to the passive loss limi-
spouse must operate a business to make
to employees, certain payments of fees
tation rules. Electing qualified joint ven-
this election. Do not make the election
and other nonemployee compensation,
ture status does not alter the application
for jointly owned property that is not a
interest, rents, royalties, real estate trans-
of the self-employment tax or the pas-
trade or business.
actions, annuities, and pensions. See
sive loss limitation rules.
Line
I, later, and the 2020 General In-
Only businesses that are owned
structions for Certain Information Re-
More information. For more informa-
!
and operated by spouses as
turns for details and other payments that
tion on qualified joint ventures, go to
co-owners (and not in the name
CAUTION
may require you to file a Form 1099.
IRS.gov/QJV.
of a state law entity) qualify for the elec-
If you received cash of more than
tion. Thus, a business owned and oper-
Community Income
$10,000 in one or more related transac-
ated by spouses through a limited liabil-
tions in your trade or business, you may
ity company (LLC) does not qualify for
If you and your spouse wholly own an
have to file Form 8300. For details, see
the election of a qualified joint venture.
unincorporated business as community
Pub. 1544.
property under the community property
Making the election. To make this
Business Owned and
laws of a state, foreign country, or U.S.
election, divide all items of income,
possession, you can treat your wholly
Operated by Spouses
gain, loss, deduction, and credit attribut-
owned, unincorporated business as a
able to the business between you and
Generally, if you and your spouse joint-
sole proprietorship, instead of a partner-
your spouse based on your interests in
ly own and operate an unincorporated
ship. Any change in your reporting posi-
the business. Each of you must file a
business and share in the profits and los-
tion will be treated as a conversion of
separate Schedule C or F. Enter your
the entity.
ses, you are partners in a partnership,
share of the applicable income, deduc-
whether or not you have a formal part-
tion, or (loss) on the appropriate lines of
C-2
Report your income and deductions
Certain transactions of interest en-
Line D
as follows.
tered into after November 1, 2006, that
If only one spouse participates in
are the same or substantially similar to
Enter on line D the employer identifica-
the business, all of the income from that
one of the types of transactions that the
tion number (EIN) that was issued to
business is the self-employment earn-
IRS has identified by published guid-
you on Form SS-4. Do not enter your
ings of the spouse who carried on the
ance as a transaction of interest.
SSN on this line. Do not enter another
business.
taxpayer's EIN (for example, from any
See the Instructions for Form 8886
If both spouses participate, the in-
Forms 1099-MISC that you received). If
for more details.
come and deductions are allocated to the
you do not have an EIN, leave line D
Capital Construction Fund
spouses based on their distributive
blank.
shares.
You need an EIN only if you have a
Do not claim on Schedule C the deduc-
If either or both spouses are part-
qualified retirement plan or are required
tion for amounts contributed to a capital
ners in a partnership, see Pub. 541.
to file employment, excise, alcohol, to-
construction fund set up under chap-
If both spouses elected to treat the
ter 535 of title 46 of the United States
bacco, or firearms returns, or are a payer
business as a qualifying joint venture,
Code. Instead, reduce the amount you
of gambling winnings. If you need an
see
Qualified Joint
Venture, earlier.
would otherwise enter on Form 1040 or
EIN, see the Instructions for Form SS-4.
States with community property laws
1040-SR, line 15, by the amount of the
Single-member LLCs. If you are the
include Arizona, California, Idaho, Lou-
deduction. Next to line 15, enter “CCF”
sole owner of an LLC that is not treated
isiana, Nevada, New Mexico, Texas,
and the amount of the deduction. For de-
as a separate entity for federal income
Washington, and Wisconsin. See Pub.
tails, see Pub. 595.
tax purposes, enter on line D the EIN
555 for more information about com-
Additional Information
that was issued to the LLC (in the LLC's
munity property laws.
legal name) for a qualified retirement
See Pub. 334 for more information for
Reportable Transaction
plan, to file employment, excise, alco-
small businesses.
hol, tobacco, or firearms returns, or as a
Disclosure Statement
payer of gambling winnings. If you do
Use Form 8886 to disclose information
not have such an EIN, leave line D
Specific
for each reportable transaction in which
blank.
Instructions
you participated. Form 8886 must be
Line E
filed for each tax year that your federal
income tax liability is affected by your
Filers of Form 1041. Do not complete
Enter your business address. Show a
participation in the transaction. You may
the block labeled “Social security num-
street address instead of a box number.
have to pay a penalty if you are required
ber (SSN).” Instead, enter the employer
Include the suite or room number, if
to file Form 8886 but do not do so. You
identification number (EIN) issued to
any. If you conducted the business from
also may have to pay interest and penal-
the estate or trust on line D.
your home located at the address shown
ties on any reportable transaction under-
on page 1 of your tax return, you do not
statements. The following are reportable
Line A
have to complete this line.
transactions.
Describe the business or professional ac-
Any listed transaction that is the
Line F
tivity that provided your principal
same as or substantially similar to tax
source of income reported on line 1. If
avoidance transactions identified by the
Generally, you can use the cash method,
you owned more than one business, you
IRS.
an accrual method, or any other method
must complete a separate Schedule C for
Any transaction offered to you or a
permitted by the Internal Revenue Code.
related party under conditions of confi-
each business. Give the general field or
In all cases, the method used must clear-
activity and the type of product or serv-
dentiality for which you paid an advisor
ly reflect income. Unless you are a
small
ice. If your general field or activity is
a fee of at least $50,000.
business taxpayer
(defined later in Part
wholesale or retail trade, or services
Certain transactions for which you
III), you must use an accrual method for
connected with production services
or a related party have contractual pro-
sales and purchases of inventory items.
(mining, construction, or manufactur-
tection against disallowance of the tax
Special rules apply to long-term con-
benefits.
ing), also give the type of customer or
tracts (see section 460 for details).
client. For example, “wholesale sale of
Certain transactions resulting in a
If you use the cash method, show all
hardware to retailers” or “appraisal of
loss of at least $2 million in any single
items of taxable income actually or con-
real estate for lending institutions.”
tax year or $4 million in any combina-
structively received during the year (in
tion of tax years. (At least $50,000 for a
Line B
cash, property, or services). Income is
single tax year if the loss arose from a
constructively received when it is credi-
foreign currency transaction defined in
Enter on line B the six-digit code from
ted to your account or set aside for you
section 988(c)(1), whether or not the
the
Principal Business or Professional
to use. Also, show amounts actually paid
loss flows through from an S corpora-
Activity Codes
chart at the end of these
during the year for deductible expenses.
tion or partnership.)
instructions.
However, if the payment of an expendi-
ture creates an asset having a useful life
C-3
that extends beyond 12 months or the
For purposes of the passive activity
Line G
end of the next taxable year, it may not
rules, you materially participated in the
be deductible or may be deductible only
If your business activity was not a rental
operation of this trade or business activi-
in part for the year of the payment. See
ty during 2020 if you met any of the fol-
activity and you met any of the material
chapter 1 of Pub. 535.
lowing seven tests.
participation tests, explained next, or the
exception for oil and gas
applies, check
1. You participated in the activity
For amounts includible in income and
the “Yes” box. Otherwise, check the
for more than 500 hours during the tax
deductible as expense under an accrual
“No” box. If you check the “No” box,
year.
method, see Pub. 538.
this activity is passive. If you have a loss
2. Your participation in the activity
To change your accounting method,
from a passive activity, see
Limit on los-
for the tax year was substantially all of
you generally must file Form 3115. You
ses, later. If you have a profit from the
the participation in the activity of all in-
also may have to make an adjustment to
rental of property to a nonpassive activi-
dividuals (including individuals who did
prevent amounts of income or expense
ty, see Recharacterization of Passive In-
not own any interest in the activity) for
from being duplicated or omitted. This
come in Pub. 925 to find out how to re-
the tax year.
is called a section 481(a) adjustment.
port the net income.
3. You participated in the activity
Example. You change to the cash
Material participation. For purposes
for more than 100 hours during the tax
method of accounting and choose to ac-
of the seven material participation tests
year, and you participated at least as
count for inventoriable items in the same
listed later, participation generally in-
much as any other person for the tax
manner as non-incidental materials and
cludes any work you did in connection
year. This includes individuals who did
supplies for the 2020 tax year. You ac-
with an activity if you owned an interest
not own any interest in the activity.
crued sales in 2019 for which you re-
in the activity at the time you did the
4. The activity is a significant par-
ceived payment in 2020. You must re-
work. The capacity in which you did the
ticipation activity for the tax year, and
port those sales in both years as a result
work does not matter. However, work is
you participated in all significant partici-
of changing your accounting method
not treated as participation if it is work
pation activities for more than 500 hours
and must make a section 481(a) adjust-
that an owner would not customarily do
during the year. An activity is a “signifi-
ment to prevent duplication of income.
in the same type of activity and one of
cant participation activity” if it involves
A net negative section 481 adjust-
your main reasons for doing the work
the conduct of a trade or business, you
ment is generally taken into account in
was to avoid the disallowance of losses
participated in the activity for more than
the year of change. A net positive sec-
or credits from the activity under the
100 hours during the tax year, and you
tion 481(a) adjustment is generally taken
passive activity rules.
did not materially participate under any
into account over a period of 4 years. In-
Work you did as an investor in an ac-
of the material participation tests (other
clude any net positive section 481(a) ad-
tivity is not treated as participation un-
than this test 4).
justments on line 6. If the net section
less you were directly involved in the
5. You materially participated in the
481(a) adjustment is negative, report it
day-to-day management or operations of
activity for any 5 of the prior 10 tax
in Part V.
the activity. Work done as an investor
years.
More information. For more informa-
includes:
6. The activity is a personal service
tion about changing your accounting
Studying and reviewing financial
activity in which you materially partici-
method and the section 481(a) adjust-
statements or reports on the activity,
pated for any 3 prior tax years. A per-
ment, see the Instructions for Form
Preparing or compiling summaries
sonal service activity is an activity that
3115. Additional information also is
or analyses of the finances or operations
involves performing personal services in
available in various revenue procedures.
of the activity for your own use, and
the fields of health, law, engineering, ar-
See Rev. Proc. 2015-13 (and any subse-
Monitoring the finances or opera-
chitecture, accounting, actuarial science,
quent revenue procedures modifying
tions of the activity in a nonmanagerial
performing arts, consulting, or any other
Rev. Proc. 2015-13) for the general pro-
capacity.
trade or business in which capital is not
cedures to obtain the advance (non-auto-
Participation by your spouse during
a material income-producing factor.
matic) consent or automatic consent of
the tax year in an activity you own can
7. Based on all the facts and circum-
the Commissioner to change a method
be counted as your participation in the
stances, you participated in the activity
of accounting. Rev. Proc. 2015-13 is
activity. This rule applies even if your
on a regular, continuous, and substantial
available
at
IRS.gov/irb/
spouse did not own an interest in the ac-
basis for more than 100 hours during the
2015-5_IRB#RP-2015-13.
See
Rev.
tivity and whether or not you and your
tax year.Your participation in managing
Proc. 2019-43 (and any subsequent reve-
spouse file a joint return. However, this
the activity does not count in determin-
nue procedures modifying Rev. Proc.
rule does not apply for purposes of de-
ing if you meet this test if any person
2019-43) for a list of automatic changes,
termining whether you and your spouse
(except you) (a) received compensation
including a description of its effect on
can elect to have your business treated
for performing management services in
prior lists of automatic changes. Rev.
as a qualified joint venture instead of a
connection with the activity, or (b) spent
Proc.
2019-43
is
available
at
partnership (see
Qualified Joint
Venture,
more hours during the tax year than you
IRS.gov/irb/2019-48_IRB#RP-2019-43.
earlier).
spent performing management services
in connection with the activity (regard-
C-4
less of whether the person was compen-
a person on a buy-sell, deposit-commis-
Line 1
sated for the services).
sion, or other similar basis for resale.
Enter gross receipts from your trade or
The Guide to Information Re-
Rental of personal property. General-
business. Be sure to check any Forms
turns in the 2020 General In-
TIP
ly, a rental activity (such as long-term
1099 you received for business income
structions for Certain Informa-
equipment leasing) is a passive activity
that must be reported on this line.
tion Returns identifies which Forms
even if you materially participated in the
1099 must be filed, the amounts to re-
If you received one or more Forms
activity. However, if you met any of the
port, and the due dates for the required
1099-NEC, be sure line 1 includes
five exceptions listed under Rental Ac-
Forms 1099.
amounts properly shown on your Forms
tivities in the Instructions for Form
1099-NEC. If the total amounts that
8582, the rental of the property is not
were reported in box 1 of Forms
treated as a rental activity and the mate-
Part I. Income
1099-NEC are more than the total you
rial participation rules explained earlier
are reporting on line 1, attach a state-
apply.
ment explaining the difference.
Exception for oil and gas. If you are
Except as otherwise provided in the In-
Statutory employees. If you received a
filing Schedule C to report income and
ternal Revenue Code, gross income in-
Form W-2 and the "Statutory employee"
deductions from an oil or gas well in
cludes income from whatever source de-
box in box 13 of that form was checked,
which you own a working interest di-
rived. In certain circumstances, howev-
report your income and expenses related
rectly or through an entity that does not
er, gross income does not include extra-
to that income on Schedule C. Enter
limit your liability, check the “Yes” box.
territorial income that is qualifying for-
your statutory employee income from
The activity of owning a working inter-
eign trade income. Use Form 8873 to
box 1 of Form W-2 on line 1 of Sched-
est is not a passive activity, regardless of
figure the extraterritorial income exclu-
ule C and check the box on that line. So-
your participation.
sion. Report it on Schedule C as ex-
cial security and Medicare tax should
plained in the Instructions for Form
Limit on losses. Your business activity
have been withheld from your earnings;
8873.
loss may be limited if you checked the
as a result, you do not owe self-employ-
“No” box on line G. In addition, your
If you were a debtor in a chapter 11
ment tax on these earnings. Statutory
rental activity loss may be limited even
bankruptcy case during 2020, see Chap-
employees include full-time life insur-
if you materially participated. In gener-
ter 11 Bankruptcy Cases in the Instruc-
ance agents, certain agent or commis-
al, a business activity in which you do
tions for Forms 1040 and 1040-SR (un-
sion drivers and traveling salespersons,
not materially participate or a rental ac-
der Income) and the Instructions for
and certain homeworkers.
tivity is a passive activity and you have
Schedule SE.
If you had both self-employment in-
to use Form 8582 to apply a limitation
come and statutory employee income,
that may reduce the loss, if any, that you
Be sure to report all income attributa-
you must file two Schedules C. You
may enter on Schedule C, line 31. For
ble to your trade or business from all
cannot combine these amounts on a sin-
details, see Pub. 925.
sources. You may receive one or more
gle Schedule C.
Forms 1099 from people who are re-
Line H
quired to provide information to the IRS
Qualified joint ventures should
listing amounts that may be income you
!
report rental real estate income
If you started or acquired this business
received as a result of your trade or busi-
not subject to self-employment
CAUTION
in 2020, check the box on line H. Also,
ness activities. The following is a list of
tax on Schedule E. See
Qualified Joint
check the box if you are reopening or re-
some of the common Forms 1099.
Venture, earlier, and the Instructions for
starting this business after temporarily
1099-MISC. For more information
Schedule E.
closing it, and you did not file a 2019
about what is being reported on Form
Schedule C for this business.
1099-MISC, see the Instructions for Re-
Installment sales. Generally, the in-
cipient included on that form.
Line I
stallment method cannot be used to re-
1099-NEC. For more information
port income from the sale of (a) personal
about what is being reported on Form
If you made any payment in 2020 that
property regularly sold under the install-
1099-NEC, see the Instructions for Re-
would require you to file any Forms
ment method, or (b) real property held
cipient included on that form.
1099, check the “Yes” box. Otherwise,
for resale to customers. But the install-
1099-K. For more information
check the “No” box.
ment method can be used to report in-
about what is being reported on Form
come from sales of certain residential
You may have to file information re-
1099-K, see the Instructions for Payee
lots and timeshares if you elect to pay
turns for wages paid to employees, cer-
included on that form and visit
IRS.gov/
interest on the tax due on that income af-
tain payments of fees and other nonem-
Gig.
ter the year of sale. See section 453(l)(2)
ployee compensation, interest, rents,
(B) for details. If you make this election,
Income you report on Sched-
royalties, real estate transactions, annui-
include the interest in the total on
ule C may be qualified business
TIP
ties, and pensions. You also may have to
Schedule 2 (Form 1040), line 8. Check
income and entitle you to a de-
file an information return if you sold
box c and enter the amount of interest
duction on Form 1040 or 1040-SR,
$5,000 or more of consumer products to
line 13.
C-5