If you earned 1099 income in 2025, Schedule C is where it lands on your return. Every dollar you don't deduct is a dollar you'll pay self-employment tax (15.3%) plus income tax on. For most sole props, that's a 25–35% bite per missed deduction.
This is the working checklist we hand new ExpenseGhost users. It's organized by Schedule C line number so you can move down the form section by section.
Part I: Income (lines 1–7)
Before deductions: total your gross receipts. Add everything reported on 1099-NEC and 1099-K, plus cash and payment-app income. The IRS already has the 1099s. If your line 1 doesn't match what they have on file, you'll get a CP2000 notice 12–18 months later.
If you sell physical products, calculate cost of goods sold (line 4) separately from operating expenses. Mixing them is one of the most common preparer corrections.
Part II: Expenses — the deductible categories
Line 8 — Advertising
Includes paid social, Google Ads, sponsored newsletters, business cards, signage, and branded swag. The "ordinary and necessary" test from §162 applies: you need a business purpose you can articulate.
Line 9 — Car and truck expenses
Two methods, pick one per vehicle per year:
- Standard mileage — 67¢/mile in 2026 (IRS Notice 2025-X confirms; verify before filing)
- Actual expenses — gas, insurance, maintenance, depreciation × business-use percentage
You can switch from standard to actual in a future year, but not the reverse if you've ever used MACRS depreciation. Most sole props are better off with standard mileage unless they drive a heavy or expensive vehicle.
The deduction requires a contemporaneous log — date, miles, business purpose. See mileage log requirements for Schedule C for what the IRS actually wants.
Line 10 — Commissions and fees
Referral fees you pay to other businesses go here. If a single recipient gets $600+ in a year, you owe them a 1099-NEC by January 31.
Line 11 — Contract labor
Payments to independent contractors (not W-2 employees). Same $600 / 1099-NEC rule. If you skip the 1099, the deduction can be challenged.
Line 12 — Depletion
Almost never relevant for service businesses. Skip unless you extract natural resources.
Line 13 — Depreciation and §179
Assets that last >1 year and cost more than your de minimis safe harbor (typically $2,500 per item) get capitalized and depreciated. §179 expensing lets you deduct most of it in year 1, up to the annual cap.
Line 14 — Employee benefit programs
Health insurance for employees (not yourself — that's the self-employed health insurance deduction on Schedule 1). Group term life under $50K. Education assistance up to $5,250/employee.
Line 15 — Insurance (other than health)
Business liability, professional indemnity, cyber, errors and omissions. Not auto insurance (that's car expenses) and not your personal health insurance.
Line 16 — Interest
Mortgage interest on business property goes here (line 16a). All other business loan interest on line 16b. Personal credit-card interest is not deductible even if used for the business — though interest on a business card is fine.
Line 17 — Legal and professional services
CPAs, lawyers, bookkeepers, consultants. If you pay an unincorporated provider $600+, you owe them a 1099-NEC.
Line 18 — Office expense
Consumables — pens, paper, postage, basic office supplies. Higher-cost equipment goes on line 13 (depreciation) or §179.
Line 19 — Pension and profit-sharing plans
Contributions to plans you set up for employees. Your own SEP-IRA / Solo 401(k) contribution doesn't go here — it lands on Schedule 1, line 16.
Line 20 — Rent or lease
Vehicle leases on 20a (with the IRS lease-inclusion table for luxury vehicles). Equipment, office, and storage rent on 20b.
Line 21 — Repairs and maintenance
Routine fixes that keep equipment working. Improvements that extend useful life or add value get depreciated, not expensed.
Line 22 — Supplies
Materials consumed in the course of work. The line between "supplies" (22) and "office expense" (18) is fuzzy; pick one and be consistent.
Line 23 — Taxes and licenses
Business licenses, permits, sales tax you remitted, payroll taxes you paid as an employer. Not federal income tax, not the half of SE tax that's already adjusted on Schedule 1, and not state income tax (that's an itemized deduction on Schedule A, if at all).
Line 24 — Travel and meals
- 24a Travel — overnight business travel, lodging, transit. 100% deductible.
- 24b Meals — 50% deductible. The temporary 100% restaurant rule expired after 2022.
Document who you ate with and the business purpose for any meal over ~$75.
Line 25 — Utilities
Phone, internet, electricity, water — but only the business portion. If you use your home phone partially for business, deduct only the business %.
Line 26 — Wages
W-2 wages you paid to employees, less any employment credits.
Line 27a — Other expenses
The catch-all. Software subscriptions, professional dues, continuing education, bank fees, merchant processing fees. List each category on Part V on the next page.
Part III: Cost of goods sold
If you sell physical product, you build COGS on lines 33–42. The math: beginning inventory + purchases + cost of labor + materials + other costs − ending inventory = COGS. This is one of the most-audited areas because it directly reduces gross profit.
Part IV: Vehicle information
If you took the line 9 deduction with the standard mileage method, you fill out Part IV. The questions: when you placed the vehicle in service, business / commuting / personal mileage split, whether you have written evidence of business use.
The categories most sole props miss
After looking at thousands of Schedule Cs, the pattern is consistent. The deductions people forget:
- Self-employed health insurance — not on Schedule C; an above-the-line adjustment on Schedule 1
- Half of SE tax — also Schedule 1, line 15. The IRS doesn't compute this for you
- Home office — line 30, but most people give up because of the form 8829 paperwork. See our home office: simplified vs actual guide
- Startup costs — up to $5,000 in year 1, with the rest amortized
- Solo 401(k) employer contributions — up to ~25% of net SE income on top of the $23K employee deferral
How ExpenseGhost helps
ExpenseGhost reads your bank transactions and receipts, classifies each one to a Schedule C line, and produces a draft Schedule C export at year-end. You verify with your tax preparer; we surface the categories so nothing slips through. See what the export looks like.
FAQ
Do I need every receipt?
For purchases under $75 (other than lodging), the IRS accepts a credit card or bank statement as substantiation. Above $75, keep the actual receipt. We recommend keeping all of them anyway — receipt OCR is cheap insurance.
What if I use cash?
Cash deductions are deductible if you can substantiate them. A contemporaneous log + the receipt is the floor. Without either, expect the deduction to be disallowed if questioned.
Can I deduct expenses from before I started the business?
Yes — up to $5,000 in start-up expenses (§195) and $5,000 in organizational costs in year 1, with the rest amortized over 180 months. Track them carefully; they're easy to miss.
What's the deadline?
Schedule C is filed with your Form 1040, due April 15, 2026 for tax year 2025. An extension (Form 4868) buys six more months to file but not to pay. See estimated tax safe harbor to avoid penalties.
ExpenseGhost provides tax estimates and tax-ready exports. We are not a tax preparer and do not file returns. Estimates are informational — verify every number with a licensed tax professional before filing.