What is the difference between gross income and net profit on Schedule C?
Understanding the difference between gross income and net profit is fundamental to filing Schedule C correctly. **Gross Income (Schedule C Line 7):** Your total business revenue before any expenses are subtracted. This is every dollar you invoiced and received — from all clients, all payment processors, and all income streams. If you received Form 1099-NEC or 1099-K, those amounts are part of your gross income. **Net Profit (Schedule C Line 31):** Gross income minus all allowable business expenses. This is the amount on which you pay both SE Tax and income tax. Formula: Net Profit = Gross Income − Cost of Goods Sold − All Schedule C Business Expenses **Example:** Freelance developer receives $120,000 gross in 2025. Business expenses: software $2,000, home office $3,000, MacBook $3,200, professional development $800, mileage $1,400, bank fees $800. Total expenses: $11,200. Net Profit: $120,000 − $11,200 = $108,800. The goal of tax planning is to legitimately maximise your deductions to reduce your net profit — which reduces both your SE Tax and your income tax.
- Gross Income = all revenue before any deductions
- Net Profit = Gross Income minus all deductible business expenses
- Both SE Tax and income tax are based on net profit
- All 1099-NEC and 1099-K income is included in gross income
- Income not on any 1099 is also included in gross income — all income is taxable