If you're a sole proprietor of a business or a professional who owns a practice, you must report your income and expenses on Schedule C of Form 1040. If you own more than one business, you must prepare a separate Schedule C for each business. In most cases, your business income is in the form of cash, checks, credit card charges, property, or services. Business expenses, on the other hand, are defined as the current operating costs of running your company. The pay you give your employees is included in these expenses. Once you calculate your business income and expenses, you can figure out your business' net profit or net loss on Schedule C by subtracting your expenses from your income. The amount you come up with can then be used to determine your non-business taxable income. Business owners with net earnings may be subject to self-employment taxes, which can be figured on Schedule SE of Form 1040. Generally, American citizens who have received business income from sources outside the United States must report it unless it's considered tax-exempt by U.S. laws. If you live outside the United States, the amount of foreign income you can exclude is indexed for inflation each year. For more information on business expenses and income, consult a tax advisor or call the toll-free number for federal tax information and assistance at 1-800-829-1040.