Schedule C Part II: Business Expenses (Lines 8–28) Explained for Freelancers (2026 Guide)

Published: June 6, 2026 · Reading time: 9 min

TL;DR: Part II is the expense engine of Schedule C — Lines 8 through 27a, where you deduct every ordinary and necessary business cost by category, then total them on Line 28. That total drops your gross income to tentative profit (Line 29), the home-office deduction comes off on Line 30, and you land on net profit or loss (Line 31), which drives both your income tax and your 15.3% self-employment tax. Use only the lines that fit your business, keep inventory costs in Part III (not Supplies), and send anything without a named line to Line 27a via Part V.

Part I tells the IRS what you earned. Part II tells it what you spent — and it's where the real tax savings live. Every legitimate cost you record here lowers your taxable income twice: once for income tax, once for self-employment tax. Yet Part II is also where freelancers leave the most money on the table, either by missing deductions or by putting them on the wrong line.

This guide walks the whole expense section, line by line, and shows how Part II feeds the rest of the form. It's the companion to the other structural walkthroughs — see the Schedule C lines hub and the deep dives on Part I income, Part III cost of goods sold, Part IV vehicle information, and Part V other expenses.

Where Part II Sits on the Form

Schedule C flows top to bottom, and Part II is the long middle stretch:

Part I (Lines 1–7) — income: gross receipts, returns, cost of goods sold, gross profit
Part II (Lines 8–28) — expenses: every operating cost, totaled on Line 28
Line 29 — tentative profit (Line 7 − Line 28)
Line 30 — home-office deduction
Line 31 — net profit or loss (carries to Schedule 1 and Schedule SE)

So Part II's single job is to produce Line 28, the total that turns your gross income into profit. Get Part II right and the rest of the form is arithmetic.

The Test Every Line Must Pass

Before any cost belongs in Part II, it has to clear the "ordinary and necessary" test from IRC §162:

Ordinary — common and accepted in your trade
Necessary — helpful and appropriate for your business

It doesn't have to be unavoidable, but it must be reasonable in amount and have a genuine business purpose. Personal spending, the personal share of mixed costs, and lavish or extravagant amounts don't qualify. Big-ticket assets aren't expensed in full here either — they're capitalized and depreciated (Line 13), though Section 179 often lets you write them off in year one.

Every Part II Line, Explained

Line 8: Advertising

Marketing and promotion — online ads, your website and domain, business cards, sponsored posts, and branded materials. See Line 8: Advertising.

Line 9: Car and Truck Expenses

Business driving, deducted by the standard mileage rate ($0.725/mile for 2026) or actual expenses. Commuting doesn't count. See Line 9: Car and Truck Expenses and the 2026 mileage rate.

Line 10: Commissions and Fees

Commissions you pay out, referral fees, and platform or marketplace commissions on your sales. See Line 10: Commissions and Fees.

Line 11: Contract Labor

Payments to independent contractors and freelancers you hire (the people you issue a 1099-NEC to) — not your own pay. See Line 11: Contract Labor.

Line 12: Depletion

Rare for freelancers — applies to natural-resource extraction. Most filers leave it blank.

Line 13: Depreciation and Section 179

The deduction for equipment, vehicles, and other assets with a useful life beyond a year. Section 179 and bonus depreciation can expense the full cost up front. See Line 13: Depreciation.

Line 14: Employee Benefit Programs

Benefits for employees (not yourself) — health, accident, and similar plans. See Line 14: Employee Benefit Programs.

Line 15: Insurance (other than health)

Business insurance: general and professional liability, property, equipment, and errors-and-omissions coverage. Your own health insurance goes elsewhere (Schedule 1). See Line 15: Insurance.

Line 16: Interest

Business loan and credit interest — Line 16a for mortgage interest, 16b for other business interest. See Line 16: Interest.

Line 17: Legal and Professional Services

Accountants, bookkeepers, tax preparers, attorneys, and consultants for your business. See Line 17: Legal and Professional Services.

Line 18: Office Expense

Consumable office costs — paper, ink, postage, small software not capitalized, and general office supplies. See Line 18: Office Expense.

Line 19: Pension and Profit-Sharing Plans

Contributions to employees' retirement plans (not your own SEP/solo 401(k), which goes on Schedule 1). See Line 19: Pension and Profit-Sharing Plans.

Line 20: Rent or Lease

20a for vehicles, machinery, and equipment; 20b for other business property such as a studio, office, or booth rent. See Line 20: Rent or Lease.

Line 21: Repairs and Maintenance

Keeping equipment and business property working — repairs, servicing, and routine maintenance (not improvements, which are capitalized). See Line 21: Repairs and Maintenance.

Line 22: Supplies

Consumables used in your work that aren't inventory — materials, tools with a short life, and software you don't capitalize. See Line 22: Supplies and Software.

Line 23: Taxes and Licenses

Business licenses, professional licenses, regulatory permits, and certain business taxes (not your federal income tax). See Line 23: Taxes and Licenses.

Line 24a: Travel

Out-of-town business travel — airfare, lodging, and transportation away from your tax home. See Line 24a: Travel.

Line 24b: Meals

Business meals, generally 50% deductible. See Line 24b: Meal Deductions.

Line 25: Utilities

Business utilities — electricity, water, and the business share of phone and internet for a non-home location. (Home utilities run through the home-office deduction instead.) See Line 25: Utilities.

Line 26: Wages

Wages paid to employees (W-2), not contractors and not yourself. See Line 26: Wages.

Line 27a: Other Expenses

The catch-all for ordinary and necessary costs with no named line — software subscriptions, professional dues, continuing education, bank fees, business gifts. You itemize them in Part V and carry the total here. See Line 27a: Other Expenses and Part V.

Line 28 → 29 → 30 → 31: How Part II Resolves

Once every line is filled:

Step	Line	What it is
Add Lines 8–27a	Line 28	Total expenses
Line 7 − Line 28	Line 29	Tentative profit (or loss)
Subtract home office	Line 30	Home-office deduction (Form 8829 or simplified)
Line 29 − Line 30	Line 31	Net profit or loss

Line 31 is the number that matters: it flows to Schedule 1 (your 1040) and to Schedule SE for self-employment tax. See Line 31: Net Profit or Loss and the home-office deduction on Line 30.

What Freelancers Get Wrong in Part II

Forcing inventory into Line 22. Resale-product and material costs belong in Cost of Goods Sold, not Supplies.
Putting their own pay on Line 26. A sole proprietor's draw isn't a wage and isn't deductible — see how to pay yourself.
Deducting their own health insurance on Line 15. That's an above-the-line deduction on Schedule 1 — see self-employed health insurance.
Dumping everything into Line 27a. "Other" should be the exception, not a substitute for the named lines — an oversized Line 27a draws scrutiny.
Mixing personal costs in. Only the business share is deductible — see business vs. personal expenses.
Expensing capital assets in full on the wrong line. Big equipment is depreciation (Line 13), not Supplies.
Skipping mileage. Line 9 is one of the largest deductions for many freelancers and the easiest to forget — see track business mileage.

For broader pitfalls, see self-employed tax deductions you're probably missing and Schedule C audit triggers.

A Tracking System That Maps to Part II

The reason Part II feels overwhelming in April is that the categories are decided then instead of as you spend. Flip it: tag every expense to its line the day it happens, and Part II is a summary, not a project.

Photograph each receipt the day you spend and assign it a Part II line.
Log mileage contemporaneously for Line 9.
Keep inventory separate so Part III and Part II never blur.
Export by line at year-end — your CPA gets a clean Line 8–27a breakdown.

CentSense does this automatically: it scans receipts with AI, tags each to the correct Schedule C line, logs mileage at the 2026 IRS rate, and exports a categorized CSV mapped straight to Part II. See how to categorize expenses for Schedule C.

Frequently Asked Questions

What is Schedule C Part II?

Part II is the expense section of Schedule C — Lines 8 through 27a, where you report every ordinary and necessary business cost by category. You add them all on Line 28 (Total expenses), subtract that from your gross income on Line 29 (Tentative profit), then take the home-office deduction on Line 30 to arrive at net profit or loss on Line 31. Part II is the largest part of the form and the one that does the most to lower your taxable income.

What's the difference between Part II expenses and Cost of Goods Sold?

Part II (Lines 8–27a) is for operating expenses — advertising, car costs, rent, supplies you consume, insurance, and so on. Cost of Goods Sold (Part III, flowing to Line 4) is for the direct cost of inventory you sell: raw materials, the wholesale cost of resale products, and direct labor that makes them. If you don't carry inventory, you skip Part III and report everything in Part II. Sellers must keep the two separate — putting inventory cost in Supplies on Line 22 overstates Part II and distorts your books.

Do I have to use every line in Part II?

No. Only fill the lines that apply to your business and leave the rest blank. A writer might use only Lines 8, 18, 22, and 27a; a rideshare driver leans on Lines 9, 13, and 23. There's no penalty for blank lines, and you should never force an expense onto a line that doesn't fit just to use it. Costs that are ordinary and necessary but have no dedicated line go on Line 27a (Other expenses), itemized in Part V.

What is the 'ordinary and necessary' test for Part II expenses?

Under IRC Section 162, a business expense is deductible if it's both ordinary — common and accepted in your line of work — and necessary — helpful and appropriate for your business. It doesn't have to be indispensable, but it must have a clear business purpose and be reasonable in amount. Personal costs, lavish or extravagant spending, and capital purchases (which are depreciated, not expensed in full) fail the test. Every line in Part II is subject to it.

How does Part II affect my net profit and self-employment tax?

Total Part II expenses on Line 28 reduce your gross income dollar for dollar, lowering both the income tax and the 15.3% self-employment tax you owe on net profit. That's why accurate, complete expense tracking matters so much for freelancers — every legitimate deduction you capture in Part II cuts your tax twice. Net profit from Line 31 flows to Schedule 1 and to Schedule SE, where self-employment tax is calculated.

Authoritative References

Make Part II Fill Itself In

Part II is only hard when you wait until April to sort it out. CentSense scans every receipt with AI, tags it to the right Schedule C line as you spend, logs mileage at the 2026 IRS rate, and exports a Part II-ready CSV your CPA can use directly. Free tier includes 10 AI scans per month; Solo is $5/month for unlimited scanning and mileage logging.

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This guide is general education for U.S. freelancers and Schedule C filers in 2026. It is not personalized tax advice — bring your specific situation to a CPA or EA.

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