US Sole Proprietor — Schedule C, SE Tax & Retirement

Confirm the taxpayer's filing status, business structure, and whether the activity qualifies as a trade or business under IRC §162. Determine if the entity is a sole proprietorship, single-member LLC disregarded for federal purposes, or a statutory employee. Identify all income streams and any hobby-loss risk under IRC §183 (the 'profit motive' rules). Flag multi-state nexus if the taxpayer works across state lines.

Gather all gross receipts (1099-NEC, 1099-K, direct payments, barter income) and classify every business expense into the correct Schedule C lines — advertising, car/truck, depreciation, insurance, legal/professional, meals (50% limit), home office, supplies, travel, and utilities. Apply the §179 expensing election and bonus depreciation rules for any equipment purchased. Compute Schedule C net profit or loss (Line 31).

Compute self-employment tax on Schedule SE using net profit from Schedule C. Net SE income equals Schedule C net profit × 92.35% (the §1402(a)(12) adjustment). SE tax is 15.3% on the first $176,100 of net SE income (2025 Social Security wage base) and 2.9% Medicare on the excess, plus the 0.9% Additional Medicare Tax on net SE income above $200,000 (single) or $250,000 (MFJ). The deductible half of SE tax flows to Schedule 1, Line 15.

Compute and optimize all Schedule 1 above-the-line deductions available to the self-employed: (1) deductible half of SE tax (§164(f)); (2) self-employed health insurance premiums (§162(l), limited to net profit); (3) retirement plan contributions — Solo 401(k) employee deferral up to $23,500 plus employer profit-sharing at 20% of net SE earnings (max $70,000 total under §415(c)), or SEP-IRA at 20% of net SE earnings (max $70,000). Flag super catch-up ($11,250) for ages 60–63 under SECURE 2.0.

Determine eligibility for the §199A qualified business income deduction (up to 20% of QBI). For most sole proprietors below the threshold ($197,300 single / $394,600 MFJ for 2025 after OBBBA provisions), the deduction is simply 20% of Schedule C net profit minus the retirement and SE health insurance deductions. Above the threshold, apply the W-2 wages and qualified property limitations. Confirm the business is not a Specified Service Trade or Business (SSTB) — law, health, consulting, financial services — where phase-outs apply.

Reconcile quarterly estimated tax payments (Form 1040-ES) against the final tax liability. Self-employed taxpayers generally must pay estimated taxes by April 15, June 16, September 15, and January 15 to avoid the underpayment penalty under IRC §6654. Check safe harbors: 100% of prior-year tax liability (110% if prior-year AGI exceeded $150,000). Compute any underpayment penalty using Form 2210 if required.

Assemble all schedules into the final Form 1040. Confirm that Schedule C net profit, SE tax, above-the-line deductions, QBI deduction, standard or itemized deduction choice, and credits (Child Tax Credit, education credits, retirement savers credit, etc.) are all correctly reflected. Determine whether to file by April 15, 2026 or request an automatic six-month extension (Form 4868) to October 15, 2026 — noting that extension to file is NOT an extension to pay.