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 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 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.
Footnotes
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IRS Schedule C (Form 1040) Instructions, Line 3. https://www.irs.gov/instructions/i1040sc ↩
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IRS Schedule C (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩