Schedule C is used to report income or loss from a business you operated as a sole proprietor. You may not have created a 'business' but if you are working as a contract employee, a consultant, a self-employed individual, etc., Schedule C is used to report the income and loss and calculate your Self-Employment tax.
Schedule C Reporting
Schedule C has five parts. Part I is used to list the income of your business and calculate your gross profit. Part II is used to subtract your business expenses and calculate your net profit or net loss. Parts III through V are only used if your business requires you to purchase inventory (Cost of Goods Sold), you need to claim deductions for car expenses (Car and Truck Expenses) or if you have any other expense not listed in Part II (Depreciation, Other Expenses).
Self-Employment Tax
When you work for someone else, the employer withholds money from your paycheck each pay period to cover Social Security and Medicare taxes. When you're self-employed, you have to pay these taxes in full yourself.
The IRS requires you to complete a Schedule SE in any year your sole proprietorship earns $400 or more of net profit. When you enter the income and expenses into the program, the Schedule SE for Self-Employment Tax is automatically generated.
Additional Information
Please refer to these articles for specific information for each section of the Schedule C: