What is the purpose of IRS tax form Schedule C?

Schedule C is specifically designed for sole proprietors to report income or loss generated from their business activities. This form allows individuals who operate as sole proprietors—meaning they own and run their own businesses without forming a corporation or partnership—to detail their earnings and expenses related to the business.

By completing Schedule C, taxpayers can calculate their net profit or loss from the business, which is then transferred to their individual income tax return (Form 1040). The expenses reported can include costs such as supplies, utilities, and depreciation, which can help reduce the overall taxable income.

This clarity in distinguishing income generated through self-employment allows the IRS to assess the tax responsibility of individuals engaged in business activities. It is essential for anyone involved in a business as a sole proprietor to file this form accurately to ensure compliance and to benefit from any potential deductions that can lower taxable income.

The other options pertain to different aspects of tax reporting. For instance, reporting capital gains and losses, disclosing personal income from all sources, or calculating self-employment tax liability are all important but fall under separate forms and schedules. Therefore, option A correctly identifies the specific function of Schedule C in the tax filing process for sole proprietors.