You are a sole proprietor if you are the sole owner of a business that is not a corporation. Report your income and expenses from your sole proprietorship on Schedule C (Form 1040), Profit or Loss From Business, or on Schedule C-EZ (Form 1040), Net Profit From Business.

You may use Schedule C-EZ to determine your net profit if you have only one sole proprietorship and you meet all the requirements listed in Part 1 of Schedule C-EZ. If you can use Schedule C-EZ, gross receipts from your business and total expenses are reported in Part II. The difference between gross receipts and total expenses you reported is your net profit. Report Net profit on line 12 of your Form 1040.

You cannot use Schedule C-EZ if your business expenses were more than $2500, your business used the accrual method of accounting, you deducted expenses for the business use of your home, or if you had employees, a net loss, or inventory.

If you cannot use Schedule C-EZ, you must report your business income and expenses on Schedule C.

If you have more than one sole proprietorship business, or if you and your spouse have separate businesses, you must use a separate Schedule C for each business.

Report the income from your business in Part I of Schedule C and the expenses in Part II. If you make or buy goods to sell, use Part III to figure the cost of goods sold. The difference between total income and total expenses is your net profit or loss, which will be taken from Schedule C and entered on line 12 of your Form 1040. If you deduct these expenses, you must use Schedule C.

If you use part of your home in your business, you should complete Form 8829. For more information, see Publication 587, Business Use of Your Home, Including Use by Day-Care Providers. You may also select Topic 509.

If the total of your net profit from all businesses is $400 or more, you must pay into the Social Security System by filing Schedule SE (Form 1040). For more information, get Publication 533, Self-Employment Tax, or select Topic 554.

If you are new in business, you may want to see Publication 1635, Understanding Your EIN - Employer Identification Numbers. Select Topic 103, Small Business Tax Education Program, for additional information on beginning a new business. Publications and forms may be downloaded from this site or ordered by calling 1-800-829-3676.

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