Keeping track of business income and expenses can be overwhelming—especially if you’re rushing to do it so you can file your taxes. Slow and steady is the best way to keep on top of these figures… but we know it doesn’t always happen that way. You start the year off with good intentions, then suddenly it’s tax season and you’re looking at a pile of receipts you definitely meant to scan and file months ago.
Depending on how your business is classified, you will need to file different forms and returns. At Tree City Tax, we work with sole proprietors who will file a Schedule C.
This article will guide you through form Schedule C so you can capture all of your relevant business expenses. This is a general guide, so if you have questions please contact your tax preparer, accountant, or schedule a consultation with us to get clarification.
Schedule C Part I: Income
Just a quick note before we dig into the expenses and deductions portion of the form—you’ll need to keep track of all income, especially if you have multiple revenue streams. Payment processors like PayPal and Stripe should issue you a 1099-K that you can check your numbers against.
Contract clients will need to issue you a 1099-NEC if they paid more than $600 to you in 2025. They’ll also file this with the IRS, so make sure you reflect all 1099 forms in your return.
If you sell physical products, you’ll report the Cost of Goods Sold (COGS) in this section as well, which is subtracted from your gross revenue to determine your profit. Part III of Schedule C walks you through the COGS calculations.
Schedule C Part II: Expenses
Here’s where it gets fun. Each box in Part II asks about a different type of expense. You can use this part of the tax form to create your expense bookkeeping documents throughout the year, then just plug the totals into each line on the form. Let’s explore each expense to make sure you’re including all possible deductions.
Advertising (Line 8): Advertising costs including digital ads (Google search ads, Facebook or Instagram ad campaigns, etc.), print advertising costs (running an ad in the local newspaper, flyers, business cards, signage, branded packaging, etc.), giveaway prizes, or sponsorships. You can also include the cost of sending cards to clients if the mail is meant to promote the business or build relationship with your clients.
This list isn’t exhaustive—check with your tax professional to see if your expenses fall under the advertising umbrella.
Car and Truck Expenses (Line 9): As a business owner, you can deduct the actual expenses of operating your vehicle—including gas, oil, repairs, insurance, registration, etc.)—or take the 2025 standard mileage rate of $0.70 per mile as your deduction for line 9.
Commissions and Fees (Line 10): Fees that are not capitalized or deducted elsewhere on your tax return can be listed on line 10 of your Schedule C. There are special considerations if these fees are paid to facilitate the sale of property, so if you’re in real estate you’ll want to consult your tax pro.
Fees paid to payment processors like PayPal or Stripe can be listed under Other Expenses in Part V, then totaled and recorded on line 27a.
Contract Labor (Line 11): Payments made to contractors or freelancers that are not employees can be listed on line 11. If you paid more than $600 to a contractor, you’ll need to file a form 1099-NEC with the IRS and provide a copy to the contractor.
Depletion (Line 12): Depletion refers to the use of natural resources via mining, quarrying, drilling, or cutting. This line applies to businesses with an economic interest in mineral property or standing timber, and it allows the business to account for the reduction of material in reserve for future collection.
Depreciation (Line 13): Depreciation applies to the purchase of equipment or property that will be in use by the business for multiple years. Each year, you can depreciate a percentage of the purchase, or in some cases you may elect to expense the entire cost at once.
Insurance (Line 15): Business insurance premiums can be deducted on line 15, including property coverage, liability insurance, car insurance for business vehicles, and any other insurance used to operate your business. Do not include health insurance or employee benefits on this line.
Interest Paid (Line 16a-16b): Line 16a deals with interest paid to a mortgage on property used for your business. You should receive a Form 1098 from the bank or financial institution that received your payments. If you didn’t receive a 1098, enter the interest paid on line 16b.
Legal and Professional Services (Line 17): Any fees charged by accountants, bookkeepers, lawyers, tax preparers, and other professional services that are necessary to operate your business are listed on line 17.
Office Expenses (Line 18): If you’re somebody who loves to browse the aisles at Staples, this business expense may feel like you’re a kid in a candy store. You can deduct the cost of office supplies and stamps/postage as long as they are ‘ordinary and necessary’ for your business and not for personal use. Common supplies in this category are printer ink and paper, paper clips, pens, janitorial supplies, notepads and sticky notes, etc.
You may even be able to expense supplies like microphones and cameras if recording audio/video is part of your business—just make sure you’re not also using them for personal, non-business tasks.
Rent or Lease Costs (Lines 20a-20b): The cost of renting or leasing a vehicle, machinery, or equipment can be expensed on line 20a, while rent for office space or other property goes on line 20b. You may only expense the amount that was for business use.
Leasing a vehicle for more than 30 days may have limitations applied—consult your tax professional.
Repairs and Maintenance (Line 21): Any incidental repairs and maintenance costs can be expensed on line 21 if they do not add appreciable value.
Supplies Not Included in COGS (Line 22): Materials, supplies, and equipment that get used within a year can be deducted on line 22. If the usefulness of these supplies is long-term, you likely need to depreciate them. Once again, when in doubt, ask your tax pro!
Taxes and Licenses (Line 23): Tax and license costs of operating your business can be expensed, including sales tax, property taxes on business assets, regulatory fees for licensure, social security and Medicare taxes paid to match employee withholding, federal unemployment tax, and federal highway use tax. You may also be able to expense contributions to your state’s unemployment or disability funds if they are considered taxes.
Travel and Meals (Line 24a-24b): You may expense the cost of lodging and transportation for business travel on line 24a, such as hotel accommodation, rental car, airline tickets, conference admission costs, and other relevant expenses.
You may also expense 50% of business meals that meet certain qualifications: the meal was an ordinary and necessary expense for your business (such as a client meeting or meal eaten on a business trip); the meal was not lavish or extravagant; you or an employee was present during the meal; and the meal was provided to a current or potential customer, client, or consultant.
Be aware of food costs associated with entertainment—the food and beverages must be purchased separately from entertainment, or the cost must be itemized on a receipt as separate from the cost of entertainment.
Utilities (Line 25): Any utility costs for your business can be expensed here, including a percentage of your home’s utilities if you have a home office. (We’ll explore the home office deduction more thoroughly in a later article).
Other Expenses (Line 27a): Any other expenses not deducted elsewhere on your Schedule C can be listed in Part V of the form on line 48 (and copied to line 27a). These expenses may include amortization, bad debts, startup costs, and more. As always, check with your tax preparer or accountant to confirm whether or not something qualifies as a business expense.
Energy Efficient Commercial Building Deduction (Line 27b): Updates made to existing commercial buildings to make them energy efficient may be eligible for full or partial expense deduction. See Form 7205 for more details.
Expenses for Business Use of Home (Line 30): You may deduct the cost of your home office using the simplified method or by taking actual expenses. In most cases, the simplified method is preferred—it’s just easier! You’ll calculate your deduction amount for line 30 by multiplying the square footage of the business area in the home (up to 300 square feet) by $5.
Businesses with Employees
Employee Benefits (Line 14): Contributions to benefits that are not part of a pension or profit-sharing plan can be expensed on line 14. This includes accident coverage, life insurance, and other benefits for your employees.
If you receive a credit for small employer health insurance premiums, you will need to reduce your line 14 deduction by the amount of the credit received.
Pension and Profit-Sharing Plans (Line 19): Any contributions you make to employee pensions, profit-sharing, or annuity plan can be expensed on line 19. If you also contributed to your own pension, you’ll enter the benefit received on your Schedule 1 rather than your Schedule C.
You’ll also need to file a Form 5500 with the IRS if you provide one of these deferred-compensation plans.
Wages (Line 26): Wages paid to employees, minus the amount of any of these credits:
- Work Opportunity Credit (Form 5884)
- Empowerment Zone Employment Credit (Form 8844)
- Credit for Employer Differential Wage Payments (Form 8932)
- Employer Credit for Paid Family and Medical Leave (form 8994)
Do not include salaries/wages deducted elsewhere on your return or paid to yourself. Employees who receive wages will need a Form W-2.
Trust Tree City Tax with Your Small Business
As a small, locally-owned business, we love supporting other businesses. If your business is a sole proprietorship, with or without an LLC, consider Tree City Tax for your tax preparation needs this year. Not only will we help you maximize your deductions and credits at tax time, we’re here for you all year long!