Intuit Academy Tax Practice Exam

What should a taxpayer report on Schedule C?

1. Passive income from investments

2. Income from self-employment

3. Ordinary income from a partnership

4. Rental income from property

The correct answer is: Income from self-employment

A taxpayer should report income from self-employment on Schedule C because this form is specifically designed for individuals who are sole proprietors or engaged in business activities as self-employed individuals. Schedule C captures the profits or losses from a business owned and operated by the taxpayer, allowing for various deductions related to operating that business, such as expenses for supplies, rent, and other necessary expenditures. Self-employment income includes any revenue generated from providing goods or services as part of a trade or business. By accurately reporting this income on Schedule C, the taxpayer can ensure compliance with tax laws and properly calculate their overall tax liability. This form directly contributes to the determination of the individual's net profit, which is subject to self-employment tax as well as ordinary income tax, making it essential for self-employed individuals.