31 — Net Profit or Loss Updated for tax year 2025

What this line means

Your final business bottom line: line 29 (tentative profit) minus line 30 (business use of home deduction). If positive, this is your net profit — it flows to Form 1040 line 8 as income and to Schedule SE for self-employment tax. If negative, it is a net loss that reduces your other income on Form 1040. This single number determines how much income tax and self-employment tax you owe on your business.

Does this apply to you?

• Every Schedule C filer completes this line — it is the final result of the entire form
• A positive number means your business made money and you owe tax on it
• A negative number means your business lost money and the loss offsets other income

Easy to overlook

Net profit triggers self-employment tax on top of income tax Net profit is not just subject to regular income tax. It also triggers self-employment tax (15.3% for the first $176,100 of combined earnings in 2025, then 2.9% above that). ¹ SE tax is calculated on 92.35% of net profit (not the full amount) because the IRS adjusts for the employer-equivalent portion. A sole proprietor with $80,000 net profit owes roughly $11,300 in self-employment tax before income tax even starts. This catches first-time self-employed filers off guard. [SOURCE: IRS Schedule SE — Self-Employment Tax]

Net profit may qualify for the 20% QBI deduction Under Section 199A, sole proprietors can deduct up to 20% of qualified business income directly from taxable income. ² If your Schedule C net profit is $100,000 and you qualify, you deduct $20,000 before income tax is calculated. The deduction phases out for specified service trades (law, medicine, consulting) above $197,300 single / $394,600 MFJ in 2025. This deduction is claimed on Form 1040 line 13, not on Schedule C itself. [SOURCE: IRS Form 8995 Instructions — Qualified Business Income Deduction]

A loss limits several other deductions If your business shows a net loss, the IRS applies the excess business loss limitation ($313,000 for single filers, $626,000 for married filing jointly in 2025). ³ Losses beyond these limits cannot offset other income in the current year — they become net operating loss carryforwards. Also, repeated losses across multiple years trigger the hobby loss rule, where the IRS may reclassify your business as a hobby and deny all deductions. [SOURCE: IRS Schedule C instructions — Line 31]

Watch out for this

Not making quarterly estimated tax payments on net profit. As a sole proprietor, no employer withholds taxes from your business income. You must make quarterly estimated payments (Form 1040-ES) covering both income tax and self-employment tax on this amount. Failing to do so results in an underpayment penalty, even if you pay the full amount when you file.

Related lines on your return

• Line 8 — Form 1040 — Where net profit flows onto your individual return
• Schedule SE — Self-employment tax calculated from this net profit
• Schedule 1, Line 15 — Form 1040 — Deductible half of self-employment tax
• Form 1040-ES — Quarterly estimated tax payments based on this profit