3 — Line 1 Minus Line 2 Updated for tax year 2025

What this line means

A simple calculation: line 1 (gross receipts) minus line 2 (returns and allowances). This gives you adjusted gross receipts before subtracting cost of goods sold. Tax software calculates this automatically.

Does this apply to you?

• You completed lines 1 and 2 and need to carry the difference forward
• Every Schedule C filer completes this line — it is a calculated field
• Tax software fills this in automatically from lines 1 and 2

Easy to overlook

This line is purely arithmetic There is nothing to look up, decide, or research here. If line 1 and line 2 are correct, line 3 is correct. The risk is entirely upstream — getting lines 1 and 2 right. ¹ [SOURCE: IRS Schedule C instructions — Line 3]

Paper filers make subtraction errors here If you file on paper, double-check your arithmetic. Math errors on calculated lines are one of the most common reasons the IRS adjusts a return. E-filing eliminates this risk entirely. ² [SOURCE: General filing pattern — math errors on calculated lines]

Watch out for this

Transposing digits when doing the subtraction by hand on a paper return. The IRS will correct the math and send you a notice, but it delays processing. Use tax software or at minimum a calculator.

Related lines on your return

• Line 1 — Schedule C — Gross receipts; the number you start with
• Line 2 — Schedule C — Returns and allowances; what you subtract
• Line 4 — Schedule C — Cost of goods sold; subtracted from this line next