Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Income — Business; Form 1040, Line 12

When to complete Schedule C-EZ or C

Who can use Schedule C-EZ

In your probing interview, explain that there are a number of conditions that the taxpayer must meet in order to use Schedule C-EZ, and then walk through each of these conditions with the taxpayer. Taxpayers can use Schedule C-EZ only if they:

  • Had business expenses of $5,000 or less
  • Used the cash method of accounting
  • Did not have an inventory at any time during the year
  • Did not have a net loss from the business
  • Were the sole proprietor for only one business (each spouse on a joint return may use a separate Schedule C-EZ to report business income from separately owned sole-proprietor business if other conditions for filing Schedule C-EZ are met)
  • Had no employees during the year
  • Were not required to file Form 4562, Depreciation and Amortization, for this business (Depreciation is out of scope for the VITA/TCE programs.)
  • Did not deduct expenses for business use of their home
  • Did not have prior-year unallowed passive activity losses from their business

In the interview, if you discover taxpayers have issues that fall outside the scope of the VITA/TCE programs, refer them to a professional tax preparer.

Tip

These conditions are listed in a flowchart at the top of Schedule C-EZ.