A sole proprietor generally reports business income and allowable expenses on Schedule C. Begin by understanding what the taxpayer does, how money is received, when the activity began, where it operates, and how records are maintained.

Income reconciliation
Reconcile bank deposits, payment-platform reports, cash receipts, Forms 1099, sales records, refunds, and transfers. A form may report gross payments that differ from taxable gross receipts, but every difference must be explained and documented.

Ordinary and necessary expenses
Evaluate whether an expense is common and helpful for the business, properly allocated between business and personal use, and supported by records. Common areas include supplies, advertising, insurance, professional fees, vehicle use, travel, meals, home office, depreciation, and contract labor. Each has specific rules.

Risk areas
Escalate inventory, employees, multi-state operations, substantial assets, losses without profit motive, digital assets, foreign activity, or uncertain entity classification.

Practice activity
Create a basic profit-and-loss statement from sample records, then list the questions needed before transferring totals to Schedule C.

Key takeaway
Schedule C preparation is not expense entry. It requires business understanding, reconciliation, classification, and documentation.