Small Business Taxes

Schedule C Gross Income

For Schedule C filers, we discuss gross income. What must be declared as income on Schedule C? What do you not have to declare as income on Schedule C?

When you receive income from customers, you must declare that income on your Schedule C.

Sometimes, however, entrepreneurs are confused on what should be included in gross income on a Schedule C and what should not be included in gross income.

Here are a few things that should not be included in your gross income calculation:

  • Appreciation in an asset's value. Just because an asset is worth more money now does not mean that appreciation imposes a tax burden. You only owe taxes when you sell or dispose of the asset.
  • Loans Loans are not income.
  • Consigment Goods If you give your products to a store and they are selling on consignment, you don't owe any taxes. Taxes on consignment goods are payable only when the goods are sold.
  • Sale of Many Business Assets Many business asset sales are not reported on Schedule C but instead are reported on other IRS tax forms.
  • Tax-Free Exchanges or Tax-Deferred Exchanges In many instances, when you exchanges one assets for another asset of the same type you can defer taxes. In this case, it is not necessary to declare the money you receive from the sale in your taxes.
  • Income earned from a sporadic activity or hobby If you make a little money from a hobby, it doesn't go on Schedule C. That's because it's not considered to be a business in the eyes of the IRS. It's only a business if your primary purpose for engaging in the activity is for income or profit and you do it regularly with continuity.
  • Qualifying foreign trade income In some cases, if your income comes from abroad, you don't have to declare it on Schedule C. Talk to your accountant to learn more.
  • Sales Tax If you collect sales tax from customers, don't report those sales taxes as income on your Schedule C.

All other income that you received from a business you operated or a profession you worked at as a sole proprietor should be declared as Schedule C gross income.

Having said that, the tax code is extremely complex and there are exceptions to every exception and special treatment for many small business activities.

Always consult with a qualified tax preparation service or accountant to get the final word on what must be declared as income on a Schedule C tax form. You can also call the IRS directly. They are very helpful, believe it or not.

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Do you have questions on Schedule C income? Any tips or observations to offer on small businesses taxes? We welcome all comments and questions.

  • JHinson posted on 8/20/2010
    We started a job in Dec of 2009 and received a partial payment from our customer. The job was completed in early 2010 at which time the expenses were paid and we collected the balance owed. Can we defer the 2008 partial payment as income in 2009 since the job was not completed until 2009?

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