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Should You Use Schedule C or Schedule K-1 in Your Individual Tax Return

Updated on April 21, 2013

It's the inevitable income tax time again! You will file your personal income tax return on the 15th of April, or the "next business day" if it falls on a weekend or holiday. What income do you need to file on April 15? It is all the money you earned the year before.

Example: Your income is $25,000 for the whole year of 2012. You will file your personal Income Tax on April 15, 2013. In other words, you have 3 1/2 months to put together your tax return and file it on or before the said due date.

There are several tax forms that requires to be filled out. The IRS have many tax forms which has different uses and distinct purposes. Two of them are Schedule C and Schedule K-1. These forms have specific purposes and classifications. You have to choose correctly which form you need to prepare.

What is Schedule C?

Many individuals are small business owners or called a single proprietor. The business is usually managed by the proprietor itself and the business structure is not as complex as a partnership or corporation.

The Internal Revenue Service (IRS) made it easier for small businesses to file its income and expenses during the tax year by using Schedule C. The Schedule C can be found only in your personal income tax return (1040).

The Schedule C is the complete information you will provide to IRS as to how much your business has earned during the year (gross amount). You will also itemize your business expenses, backed with receipts. If there is profit left (net gain or net revenue), it will be added to the rest of your income from other sources during the year.

Your net income from Schedule C is subject to Self-Employment tax. Self-Employment tax is paying your own Social Security and Medicare contribution for both the employee's and the employer's share. Int this case, since you are considered as an employer to yourself, 50% of your self-employment tax becomes deductible in your personal income tax return.

Example 1: I earn money on the side from writing on Hubpages. Since a freelance writer is considered as self-employment, I will use Schedule C when I file my income tax return for the earnings from Hubpages.

Example 2: I sell merchandise to the public, whether on-line or delivering the actual products to my customers. I didn't register my business as a partnership or corporation. Therefore, I will use Schedule C when I file my income tax return.

Example 3: I teach piano lessons or Taekwando on weekends. All the income I received from rendering my services from teaching piano lessons and Taekwando will be on Schedule C.

What is Schedule K-1?

Schedule K-1 is used when you are part owner of a Partnership or S-Corporation. The legal structure of a partnership and S-Corporation is usually owned by two or more persons. There are certain exceptions by owning it 100% yourself. The form Schedule K-1 is the "proof" of your income, expenses or losses from your partnership or S-Corporation business.

Schedule K-1 is also called a "pass-through". It means that all the income from your Partnership or S-corporation earned during the year, whether you took money from those earnings or not, will be taxed on your personal return (1040). It is also the same with the business losses.

By the looks of it, being a partner in a partnership or a stockholder in an S-Corporation, you are really taxed personally on your individual income tax return.

Therefore as a taxpayer, you need to know what are the basic tax laws and correct forms to use in order to file your tax return properly.

It is best to consult with your Certified Public Accountant (CPA), Enrolled Agent (EA) or any IRS Certified Tax Preparer if you are not sure how to prepare your Income Tax Return correctly.

Copyright © 2012 The Girls. All rights reserved. Reproduction in whole or in part in any form or medium without permission prohibited.


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      Ray 3 years ago

      Thank you for such a great info. I was able to come across this online service that allows you to easily edit your PDF documents. ( You can fill out PDF form, save it, fax it, and email it. You might want to try, it was good!

    • AudreyHowitt profile image

      Audrey Howitt 4 years ago from California

      Useful hub!!

    • teaches12345 profile image

      Dianna Mendez 5 years ago

      Thanks for the information. I am going to have to look into this when we file our taxes.