You are a sole proprietor if you are the sole owner of a business that is not a corporation or partnership. 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 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-Car Providers or see Topic 509.

If the total of your net profit from all businesses is $400 or more, you must compute your self-employment tax on Schedule SE Form 1040. For more information, see Publication 533, Self-Employment Tax, or Topic 554.

If you are new in business, you may want to refer to Publication 583, Starting a Business and Keeping Records, Topic 103, Small Business Tax Education Program, or Real Planet, an interactive learning lab designed for the younger entrepreneur. Publication 334, Tax Guide for Small Business, has more information on income and expenses from a sole proprietorship. Publications and forms may be downloaded from this site or ordered by calling 1-800-829-3676.

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