Besides sole proprietorships, three other types of business may use Schedule C. This includes:Single-member LLCs (SMLLCs). The IRS âdisregards" an LLC with only one memberâcalled an SMLLCâunless the SMLLC files an election for corporate tax treatment. A disregarded SMLLC doesn't exist for federal income tax purposes and must allocate business income and expense to its owner. In the case of an SMLLC owned by an individualâand not a corporation or partnershipâthat means filing Schedule C.
Qualified joint ventures. Spouses who own a combined 100% of an unincorporated business may choose to each file Schedule C for their share of the income and expenses. Both spouses must also meet one of the IRS's tests for material participationâmeaning they actively worked in the business. Otherwise, the business must file Form 1065 like most partnerships.
Community income. Spouses who wholly own an unincorporated business as community property under state or foreign law may also choose to file Schedule C. No material participation requirement exists in this case.
Schedule C does not include most rental real estate income, farm income, or hobbies. The owner must attempt to earn a profit plus continually and regularly participate in an activity for the IRS to consider that activity a business instead of a hobby.