Department of the Treasury (2023)

Department of the Treasury

Internal Revenue Service

2023 Instructions for Schedule C

Profit or Loss

From Business

Use Schedule C (Form 1040) to report income or (loss) from a business you operated

or a profession you practiced as a sole proprietor. An activity qualifies as a business if

your primary purpose for engaging in the activity is for income or profit and you are

involved in the activity with continuity and regularity. For example, a sporadic activity, a not-for-profit activity, or a hobby does not qualify as a business. To report income

from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8j.

Also, use Schedule C to report (a) wages and expenses you had as a statutory employee; (b) income and deductions of certain qualified joint ventures; and (c) certain

amounts shown on a Form 1099, such as Form 1099-MISC, Form 1099-NEC, and

Form 1099-K. See the instructions on your Form 1099 for more information about

what to report on Schedule C.

You may be subject to state and local taxes and other requirements such as business

licenses and fees. Check with your state and local governments for more information.

Section references are to the Internal

Revenue Code unless otherwise noted.

cial clean vehicle may qualify for a

clean vehicle tax credit. See Form 8936

and its instructions for more information.

Future Developments

For the latest information about developments related to Schedule C and its

instructions, such as legislation enacted

after they were published, go to IRS.gov/

ScheduleC.

What's New

Redesigned Form 1040-SS. For 2023,

Schedule C (Form 1040) is available to

be filed with Form 1040-SS, if applicable. It replaces Form 1040-SS, Part IV.

For additional information, see the Instructions for Form 1040-SS.

Standard mileage rate. The business

standard mileage rate for 2023 is 65.5

cents per mile.

Business meals deduction. The temporary 100% deduction for food or beverages provided by a restaurant has expired. The business meals deduction is

now 50%.

Energy efficient commercial buildings

deduction. The energy efficient commercial buildings deduction is now reported on new line 27b.

Bonus depreciation. The bonus depreciation deduction under section 168(k)

begins its phaseout in 2023 with a reduction of the applicable limit from

100% to 80%.

Commercial clean vehicle credit.

Businesses that buy a qualified commer-

Jan 24, 2024

Reminders

Gig economy tax center. The gig (or

on-demand, sharing, or access) economy

refers to an activity where people earn

income providing on-demand work,

services, or goods. Go to IRS.gov/Gig to

get more information about the tax consequences of participating in the gig

economy.

Excess business loss limitation. If you

report a loss on line 31 of your Schedule C (Form 1040), you may be subject

to a business loss limitation. The disallowed loss resulting from the limitation

will not be reflected on line 31 of your

Schedule C. Instead, use Form 461 to

determine the amount of your excess

business loss, which will be included as

income on Schedule 1 (Form 1040),

line 8p. Any disallowed loss resulting

from this limitation will be treated as a

net operating loss that must be carried

forward and deducted in a subsequent

year.

See Form 461 and its instructions for

details on the excess business loss limitation.

Small Business and Self-Employed

(SB/SE) Tax Center. Do you need help

with a tax issue or preparing your return,

or do you need a free publication or

form? SB/SE serves taxpayers who file

Cat. No. 24329W

Form 1040, 1040-SR, Schedules C, E, F,

or Form 2106, as well as small business

taxpayers with assets under $10 million.

For additional information, go to the

Small Business and Self-Employed Tax

Center at IRS.gov/SmallBiz.

General

Instructions

Other Schedules and Forms

You May Have To File

• Schedule A (Form 1040) to deduct

interest, taxes, and casualty losses not

related to your business.

• Schedule E (Form 1040) to report

rental real estate and royalty income or

(loss) that is not subject to

self-employment tax.

• Schedule F (Form 1040) to report

profit or (loss) from farming.

• Schedule J (Form 1040) to figure

your tax by averaging your farming or

fishing income over the previous 3

years. Doing so may reduce your tax.

• Schedule SE (Form 1040) to pay

self-employment tax on income from

any trade or business.

• Form 461 to report an excess

business loss.

• Form 3800 to claim any of the

general business credits.

• Form 4562 to claim depreciation

and amortization on assets placed in

service in 2023, to claim amortization

that began in 2023, to make an election

under section 179 to expense certain

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property, or to report information on

listed property.

• Form 4684 to report a casualty or

theft gain or (loss) involving property

used in your trade or business or

income-producing property.

• Form 4797 to report sales,

exchanges, and involuntary conversions

(not from a casualty or theft) of trade or

business property.

• Form 6198 to apply a limitation to

your loss if you have a business loss and

you have amounts invested in the

business for which you are not at risk.

• Form 6252 to report income from

an installment agreement.

• Form 7205 to claim the IRC 179D

deduction for qualifying energy efficient

commercial building expenses.

• Form 8582 to apply a limitation to

your loss from passive activities.

• Form 8594 to report certain

purchases or sales of groups of assets

that constitute a trade or business.

• Form 8824 to report like-kind

exchanges.

• Form 8829 to claim actual

expenses for business use of your home.

• Form 8936 to claim the

commercial clean vehicle credit.

• Form 8960 to pay Net Investment

Income Tax on certain income from

your passive activities.

• Form 8990 to determine whether

your business interest deduction is

limited.

• Form 8995 or 8995-A to claim a

deduction for qualified business income.

Single-member limited liability company (LLC). Generally, a single-member domestic LLC is not treated as a separate entity for federal income tax

purposes. If you are the sole member of

a domestic LLC, file Schedule C (or

Schedule E or F, if applicable) unless

you have elected to treat the domestic

LLC as a corporation. See Form 8832

for details on making this election and

for information about the tax treatment

of a foreign LLC.

Single-member LLCs with employees.

A single-member LLC must file employment tax returns using the LLC's

name and employer identification number (EIN) rather than the owner's name

and EIN, even if the LLC is not treated

as a separate entity for federal income

tax purposes.

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Heavy highway vehicle use tax. If you

use certain highway trucks, truck-trailers, tractor-trailers, or buses in your

trade or business, you may have to pay a

federal highway motor vehicle use tax.

See the Instructions for Form 2290 to

find out if you must pay this tax and go

to IRS.gov/Trucker for the most recent

developments.

Information returns. You may have to

file information returns for wages paid

to employees, and certain payments of

fees and other nonemployee compensation, interest, rents, royalties, real estate

transactions, annuities, and pensions.

See Line I, later, and the 2023 General

Instructions for Certain Information Returns for details and other payments that

may require you to file a Form 1099.

If you received cash of more than

$10,000 in one or more related transactions in your trade or business, you may

have to file Form 8300. For details, see

Pub. 1544. See also the IRS Form 8300

Reference Guide, available at IRS.gov/

Businesses/Small-Businesses-SelfEmployed/IRS-Form-8300-ReferenceGuide.

Business Owned and

Operated by Spouses

Generally, if you and your spouse jointly

own and operate an unincorporated business and share in the profits and losses,

you are partners in a partnership, whether or not you have a formal partnership

agreement. You generally have to file

Form 1065 instead of Schedule C for

your joint business activity; however,

you may not have to file Form 1065 if

either of the following applies.

• You and your spouse elect to be

treated as a qualified joint venture. See

Qualified Joint Venture next.

• You and your spouse wholly own

the unincorporated business as community property and you treat the business as

a sole proprietorship. See Community

Income, later.

Otherwise, use Form 1065. See Pub. 541

for information about partnerships.

Qualified Joint Venture

You and your spouse can elect to treat an

unincorporated business as a qualified

joint venture instead of a partnership if

you:

• Each materially participate in the

business (see Material participation, later, in the instructions for line G);

• Are the only owners of the business; and

• File a joint return for the tax year.

Making the election will allow you to

avoid the complexity of Form 1065, but

still give each of you credit for social security earnings on which retirement benefits, disability benefits, survivor benefits, and insurance (Medicare) benefits

are based. In most cases, this election

will not increase the total tax owed on

the joint return.

Jointly owned property. You and your

spouse must operate a business to make

this election. Do not make the election

for jointly owned property that is not a

trade or business.

Only businesses that are owned

and operated by spouses as

CAUTION co-owners (and not in the name

of a state law entity) qualify for the election. Thus, a business owned and operated by spouses through an LLC does

not qualify for the election of a qualified

joint venture.

!

Making the election. To make this

election, divide all items of income,

gain, loss, deduction, and credit attributable to the business between you and

your spouse based on your respective interests in the business. Each of you must

file a separate Schedule C or F. Enter

your share of the applicable income, deduction, or (loss) on the appropriate

lines of your separate Schedule C or F.

Each of you may also need to file a separate Schedule SE to pay self-employment tax. If the business was taxed as a

partnership before you made the election, the partnership will be treated as

terminating at the end of the preceding

tax year. For information on how to report the termination of the partnership,

see Pub. 541.

Revoking the election. The election

can be revoked only with the permission

of the IRS. However, the election remains in effect only for as long as you

and your spouse continue to meet the requirements to make the election. If you

and your spouse fail to meet the requirements for any year, you will need to

make a new election to be treated as a

qualified joint venture in any future

year.

Employer

identification

number

(EIN). You and your spouse do not

need to obtain an EIN to make the election. But you may need an EIN to file

other returns, such as employment or excise tax returns. To apply for an EIN, see

the Instructions for Form SS-4 or go to

IRS.gov/EIN.

Rental real estate business. If you and

your spouse make the election for your

rental real estate business, you must

each report your share of income and

deductions on Schedule E. Rental real

estate income is not generally included

in net earnings from self-employment

subject to self-employment tax and is

generally subject to the passive loss limitation rules. Electing qualified joint

venture status does not alter the application of the self-employment tax or the

passive loss limitation rules.

More information. For more information on qualified joint ventures, go to

IRS.gov/QJV.

Community Income

If you and your spouse wholly own an

unincorporated business as community

property under the community property

laws of a state, foreign country, or U.S.

territory, you can treat your wholly

owned, unincorporated business as a

sole proprietorship, instead of a partnership. Any change in your reporting position will be treated as a conversion of

the entity.

Report your income and deductions

as follows.

• If only one spouse participates in

the business, all of the income from that

business is the self-employment earnings of the spouse who carried on the

business.

• If both spouses participate, the income and deductions are allocated to the

spouses based on their distributive

shares.

• If either or both spouses are partners in a partnership, see Pub. 541.

• If both spouses elected to treat the

business as a qualifying joint venture,

see Qualified Joint Venture, earlier.

States with community property laws

include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,

Washington, and Wisconsin. See Pub.

555 for more information about community property laws.

Reportable Transaction

Disclosure Statement

Use Form 8886 to disclose information

for each reportable transaction in which

you participated. Form 8886 must be

filed for each tax year that your federal

income tax liability is affected by your

participation in the transaction. You may

have to pay a penalty if you are required

to file Form 8886 but do not do so. You

may also have to pay interest and penalties on any reportable transaction understatements. The following are reportable

transactions.

• Any listed transaction that is the

same as or substantially similar to tax

avoidance transactions identified by the

IRS.

• Any transaction offered to you or a

related party under conditions of confidentiality for which you paid an advisor

a fee of at least $50,000.

• Certain transactions for which you

or a related party have contractual protection against disallowance of the tax

benefits.

• Certain transactions resulting in a

loss of at least $2 million in any single

tax year or $4 million in any combination of tax years. (At least $50,000 for a

single tax year if the loss arose from a

foreign currency transaction defined in

section 988(c)(1), whether or not the

loss flows through from an S corporation or partnership.)

• Certain transactions of interest entered into that are the same or substantially similar to one of the types of transactions that the IRS has identified by

published guidance as a transaction of

interest.

See the Instructions for Form 8886

for more details.

Capital Construction Fund

Do not claim on Schedule C the deduction for amounts contributed to a capital

construction fund set up under chapter 535 of title 46 of the United States

Code. Instead, reduce the amount you

would otherwise enter on Form 1040 or

1040-SR, line 15, by the amount of the

deduction. Next to line 15, enter “CCF”

and the amount of the deduction. For details, see Pub. 595.

Additional Information

See Pub. 334 for more information for

small businesses.

Specific

Instructions

Filers of Form 1041. Do not complete

the block labeled “Social security number (SSN).” Instead, enter the EIN issued to the estate or trust on line C.

Line A

Describe the business or professional activity that provided your principal

source of income reported on line 1. If

you owned more than one business,

complete a separate Schedule C for each

business. Give the general field or activity and the type of product or service. If

your general field or activity is wholesale or retail trade, or services connected

with production services (mining, construction, or manufacturing), also give

the type of customer or client; for example, “wholesale sale of hardware to retailers” or “appraisal of real estate for

lending institutions.”

Line B

Enter on line B the six-digit code from

the Principal Business or Professional

Activity Codes chart at the end of these

instructions. For nonstore retailers, select the PBA code by the primary product that your establishment sells. For example, establishments primarily selling

prescription and non-prescription drugs,

select PBA code 456110 Pharmacies &

drug retailers.

Line D

Enter on line D the EIN that was issued

to you on Form SS-4. Do not enter your

SSN on this line. Do not enter another

taxpayer's EIN (for example, from any

Forms 1099-MISC that you received). If

you do not have an EIN, leave line D

blank.

You need an EIN only if you have a

qualified retirement plan or are required

to file employment, excise, alcohol, tobacco, or firearms returns, or are a payer

of gambling winnings. If you need an

EIN, see the Instructions for Form SS-4.

Single-member LLCs. If you are the

sole owner of an LLC that is not treated

as a separate entity for federal income

tax purposes, enter on line D the EIN

that was issued to the LLC (in the LLC's

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legal name) for a qualified retirement

plan, to file employment, excise, alcohol, tobacco, or firearms returns, or as a

payer of gambling winnings. If you do

not have such an EIN, leave line D

blank.

Line E

Enter your business address. Show a

street address instead of a box number.

Include the suite or room number, if any.

If you conducted the business from your

home located at the address shown on

page 1 of your tax return, you do not

have to complete this line.

Line F

Generally, you can use the cash method,

an accrual method, or any other method

permitted by the Internal Revenue Code.

In all cases, the method used must clearly reflect income. Unless you are a small

business taxpayer (defined later under

Part III), you must use an accrual method for sales and purchases of inventory

items. Special rules apply to long-term

contracts (see section 460 for details).

See also Rev. Proc. 2022-9 for changes

in accounting periods and methods of

accounting, available at IRS.gov/irb/

2022-02_IRB#REV-PROC-2022-9.

If you use the cash method, show all

items of taxable income actually or constructively received during the year (in

cash, property, or services). Income is

constructively received when it is credited to your account or set aside for you

to use. Also, show amounts actually paid

during the year for deductible expenses.

However, if the payment of an expenditure creates an asset having a useful life

that extends beyond 12 months or the

end of the next tax year, it may not be

deductible or may be deductible only in

part for the year of the payment. See

chapter 2 of Pub. 334, Tax Guide for

Small Business.

For amounts includible in income and

deductible as expense under an accrual

method, see Pub. 538.

To change your accounting method,

you must generally file Form 3115. You

may also have to make an adjustment to

prevent amounts of income or expense

from being duplicated or omitted. This

is called a section 481(a) adjustment.

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Example. You change to the cash

method of accounting and choose to account for inventoriable items in the same

manner as non-incidental materials and

supplies for the 2023 tax year. You accrued sales in 2022 for which you received payment in 2023. You must report those sales in both years as a result

of changing your accounting method

and must make a section 481(a) adjustment to prevent duplication of income.

A net negative section 481 adjustment is generally taken into account in

the year of change. A net positive section 481(a) adjustment is generally taken

into account over a period of 4 years. Include any net positive section 481(a) adjustments on line 6. If the net section

481(a) adjustment is negative, report it

in Part V.

More information. For more information about changing your accounting

method and the section 481(a) adjustment, see the Instructions for Form

3115. Additional information is also

available in various revenue procedures.

See Rev. Proc. 2022-14 (and any subsequent revenue procedures modifying

Rev. Proc. 2022-14) for a list of automatic changes, including a description

of its effect on prior lists of automatic

changes. Rev. Proc. 2022-14 is available

IRS.gov/irb/2022-07_IRB#REVat

PROC-2022-14.

Line G

If your business activity is not a rental

activity and you meet any of the material participation tests, explained next, or

the exception for oil and gas applies,

check the “Yes” box. Otherwise, check

“No.” If you check “No,” this activity is

passive. If you have a loss from a passive activity, see Limit on losses, later. If

you have a profit from the rental of

property to a nonpassive activity, see

Recharacterization of Passive Income in

Pub. 925 to find out how to report the

net income.

Material participation. For purposes

of the seven material participation tests

listed later, participation generally includes any work you did in connection

with an activity, if you owned an interest

in the activity at the time you did the

work. The capacity in which you did the

work does not matter. However, work is

not treated as participation if it is work

that an owner would not customarily do

in the same type of activity and one of

your main reasons for doing the work

was to avoid the disallowance of losses

or credits from the activity under the

passive activity rules.

Work you did as an investor in an activity is not treated as participation unless you were directly involved in the

day-to-day management or operations of

the activity. Work performed as an investor includes:

• Studying and reviewing financial

statements or reports on the activity,

• Preparing or compiling summaries

or analyses of the finances or operations

of the activity for your own use, and

• Monitoring the finances or operations of the activity in a nonmanagerial

capacity.

Participation by your spouse during

the tax year in an activity in which you

own an interest can be counted as your

participation in the activity. This rule applies even if your spouse did not own an

interest in the activity and whether or

not you and your spouse file a joint return. However, this rule does not apply

for purposes of determining whether you

and your spouse can elect to have your

business treated as a qualified joint venture instead of a partnership (see Qualified Joint Venture, earlier).

For purposes of the passive activity

rules, you materially participated in the

operation of a trade or business activity

during 2023 if you met any of the following seven tests.

1. You participated in the activity

for more than 500 hours during the tax

year.

2. Your participation in the activity

for the tax year was substantially all of

the participation in the activity of all individuals (including individuals who did

not own any interest in the activity) for

the tax year.

3. You participated in the activity

for more than 100 hours during the tax

year, and you participated at least as

much as any other person for the tax

year. This includes individuals who did

not own any interest in the activity.

4. The activity is a significant participation activity for the tax year, and

you participated in all significant participation activities for more than 500 hours

during the year. An activity is a “signifi-

cant participation activity” if it involves

the conduct of a trade or business, you

participated in the activity for more than

100 hours during the tax year, and you

did not materially participate under any

of the material participation tests (other

than this test 4).

5. You materially participated in the

activity for any 5 of the prior 10 tax

years.

6. The activity is a personal service

activity in which you materially participated for any 3 prior tax years. A personal service activity is an activity that

involves performing personal services in

the field of health, law, engineering, architecture, accounting, actuarial science,

performing arts, or consulting, or any

other trade or business in which capital

is not a material income-producing factor.

7. Based on all the facts and circumstances, you participated in the activity

on a regular, continuous, and substantial

basis for more than 100 hours during the

tax year. Your participation in managing

the activity does not count in determining if you meet this test if any person

(except you) (a) received compensation

for performing management services in

connection with the activity, or (b) spent

more hours during the tax year than you

spent performing management services

in connection with the activity (regardless of whether the person was compensated for the services).

Rental of personal property. Generally, a rental activity (such as long-term

equipment leasing) is a passive activity

even if you materially participated in the

activity. However, if you met any of the

five exceptions listed under Rental Activities in the Instructions for Form

8582, the rental of the property is not

treated as a rental activity and the material participation rules explained earlier

apply.

Exception for oil and gas. If you are

filing Schedule C to report income and

deductions from an oil or gas well in

which you own a working interest directly or through an entity that does not

limit your liability, check the “Yes” box.

The activity of owning a working interest is not a passive activity, regardless of

your participation.

Limit on losses. Your business activity

loss may be limited if you checked the

“No” box on line G. In addition, your

rental activity loss may be limited even

if you materially participated. In general, a business activity in which you do

not materially participate or a rental activity is a passive activity and you have

to use Form 8582 to apply a limitation

that may reduce the loss, if any, that you

may enter on Schedule C, line 31. For

details, see Pub. 925.

Note. Line G doesn't apply to filers of

Form 1040-SS.

Line H

If you started or acquired this business

in 2023, check the box on line H. Also,

check the box if you are reopening or restarting this business after temporarily

closing it, and you did not file a 2022

Schedule C for this business.

Line I

If you made any payment in 2023 that

would require you to file any Forms

1099, check the “Yes” box. Otherwise,

check the “No” box.

You may have to file information returns for wages paid to employees, certain payments of fees and other nonemployee compensation, interest, rents,

royalties, real estate transactions, annuities, and pensions. You may also have to

file an information return if you sold

$5,000 or more of consumer products to

a person on a buy-sell, a deposit-commission, or other similar basis for resale.

Note. Line I doesn't apply to filers of

Form 1040-SS.

The Guide to Information ReTIP turns in the 2023 General Instructions for Certain Information Returns identifies which Forms

1099 must be filed, the amounts to report, and the due dates for the required

Forms 1099.

Part I. Income

Except as otherwise provided in the Internal Revenue Code, gross income includes income from whatever source derived. In certain circumstances, however, gross income does not include extraterritorial income that is qualifying foreign trade income. Use Form 8873 to

figure the extraterritorial income exclusion. Report it on Schedule C as explained in the Instructions for Form

8873.

If you were a debtor in a chapter 11

bankruptcy case during 2023, see Chapter 11 Bankruptcy Cases in the Instructions for Form 1040 (under Income) and

the Instructions for Schedule SE.

Be sure to report all income attributable to your trade or business from all

sources. You may receive one or more

Forms 1099 from people who are required to provide information to the IRS

listing amounts that may be income you

received as a result of your trade or business activities. The following is a list of

some of the common Forms 1099.

• 1099-MISC. For more information

about what is reported on Form

1099-MISC, see the Instructions for Recipient included on that form.

• 1099-NEC. For more information

about what is reported on Form

1099-NEC, see the Instructions for Recipient included on that form.

• 1099-K. For more information

about what is reported on Form 1099-K,

see the Instructions for Payee included

on that form and go to IRS.gov/Gig.

Income you report on Sched-

TIP ule C may be qualified business

income and entitle you to a deduction on Form 1040 or 1040-SR,

line 13. See Forms 8995 and 8995-A,

and

IRS.gov/Newsroom/Facts-Aboutthe-Qualified-Business-IncomeDeduction.

Line 1

Enter gross receipts from your trade or

business. Be sure to check any Forms

1099 you received for business income

that must be reported on this line.

If you received one or more Forms

1099-NEC, be sure line 1 includes

amounts properly shown on your Forms

1099-NEC. If the total amounts that

were reported in box 1 of Forms

1099-NEC are more than the total you

are reporting on line 1, attach a statement explaining the difference.

Statutory employees. If you received a

Form W-2, Wage and Tax Statement,

and the "Statutory employee" box in

box 13 of that form was checked, report

your income and expenses related to that

C-5

income on Schedule C. Enter your statutory employee income from box 1 of

Form W-2 on line 1 of Schedule C and

check the box on that line. Social security and Medicare tax should have been

withheld from your earnings; as a result,

you do not owe self-employment tax on

these earnings. Statutory employees include full-time life insurance agents,

certain agent or commission drivers and

traveling salespersons, and certain

homeworkers.

If you had both self-employment income and statutory employee income,

you must file two Schedules C. You cannot combine these amounts on a single

Schedule C.

Note. Statutory employees information doesn’t apply to Form 1040-SS filers.

Qualified joint ventures should

report rental real estate income

CAUTION not subject to self-employment

tax on Schedule E. See Qualified Joint

Venture, earlier, and the Instructions for

Schedule E.

!

Installment sales. Generally, the installment method cannot be used to report income from the sale of (a) personal

property regularly sold under the installment method, or (b) real property held

for resale to customers. But the installment method can be used to report income from sales of certain residential

lots and timeshares if you elect to pay

interest on the tax due on that income after the year of sale. See section 453(l)(2)

(B) for details. If you make this election,

include the interest in the total on

Schedule 2 (Form 1040), line 14, and

enter the amount of interest and “453(l)

(3)” on the line next to the entry space.

If you use the installment method, attach a statement to your return. Show

separately for 2023 and the 3 preceding

years: gross sales, cost of goods sold,

gross profit, percentage of gross profit to

gross sales, amounts collected, and gross

profit on amounts collected.

Line 2

Report your sales returns and allowances as a positive number on line 2. A

sales return is a cash or credit refund

you gave to customers who returned defective, damaged, or unwanted products.

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A sales allowance is a reduction in the

selling price of products, instead of a

cash or credit refund.

Line 6

Report on line 6 business income not reported elsewhere in Part I. Be sure to include amounts from the following.

• Finance reserve income.

• Scrap sales.

• Bad debts you recovered.

• Interest (such as on notes and

accounts receivable).

• State gasoline or fuel tax refunds

you received in 2023.

• Any amount of credit for biofuel

claimed on line 3 of Form 6478.

• Any amount of credit for biodiesel,

renewable diesel, and sustainable

aviation fuel claimed on line 11 of Form

8864.

• Credit for federal tax paid on fuels

claimed on your 2022 Form 1040 or

1040-SR.

• Prizes and awards related to your

trade or business.

• Amounts you received in your

trade or business as shown on Form

1099-PATR.

• The amount of any payroll tax

credit taken by an employer for qualified

paid sick leave and qualified paid family

leave under the Families First

Coronavirus Response Act (FFCRA),

and the American Rescue Plan Act of

2021 (ARP). See Form 941, lines 11b,

11d, 13c, and 13e, and Form 944, lines

8b, 8d, 10d, and 10f. You must include

the full amount (both the refundable and

nonrefundable portions) of the credit for

qualified sick and family leave wages in

gross income for the tax year that

includes the last day of any calendar

quarter with respect to which a credit is

allowed.

Note. A credit is available only if the

leave was taken after March 31, 2020,

and before October 1, 2021, and only after the qualified leave wages were paid,

which might under certain circumstances not occur until a quarter after September 30, 2021, including quarters during 2023. Accordingly, all lines related

to qualified sick and family leave wages

remain on the employment tax returns

for 2023.

• Any amount of credit for COBRA

premium assistance. See your Form(s)

941 or Form 944 for 2023 for the

nonrefundable and refundable portions

of this credit that you claimed against

your employment taxes.

• Other kinds of miscellaneous

business income.

If the business use percentage of any

listed property (defined under Line 13,

later) dropped to 50% or less in 2023,

report on this line any recapture of excess depreciation, including any section

179 expense deduction. Use Part IV of

Form 4797 to figure the recapture. Also,

if the business use percentage drops to

50% or less on leased listed property

(other than a vehicle), include on this

line any inclusion amount. See chapter 5

of Pub. 946 to figure the amount.

Part II. Expenses

Capitalizing costs of producing property and acquiring property for resale. If you produced real or tangible

personal property or acquired real or

personal property for resale, you must

generally capitalize certain expenses in

inventory or other property. These expenses include the direct costs of the

property and any indirect costs properly

allocable to that property. Reduce the

amounts on lines 8 through 26, 27b, and

Part V by amounts capitalized. See Pub.

538 for a discussion of the uniform capitalization rules.

Exception for a small business taxpayer. A small business taxpayer (defined later under Part III) is not required

to capitalize certain expenses to inventory or other property. See Pub. 538 for

more details.

Exception for creative property. If

you are a freelance artist, author, or photographer, you may be exempt from the

capitalization rules. However, your personal efforts must have created (or reasonably be expected to create) the property. This exception does not apply to

any expense related to printing, photographic plates, motion picture films, videotapes, or similar items. These expenses are subject to the capitalization rules.

For details, see Uniform Capitalization

Rules in Pub. 538.

Line 9

You can deduct the actual expenses of

operating your car or truck or take the

standard mileage rate. This is true even

if you used your vehicle for hire (such as

a taxicab). You must use actual expenses

if you used five or more vehicles simultaneously in your business (such as in

fleet operations). You can’t use actual

expenses for a leased vehicle if you previously used the standard mileage rate

for that vehicle.

You can take the standard mileage

rate for 2023 only if you:

• Owned the vehicle and used the

standard mileage rate for the first year

you placed the vehicle in service, or

• Leased the vehicle and are using

the standard mileage rate for the entire

lease period.

If you take the standard mileage rate:

• Multiply the number of business

miles driven by 0.655. For example,

1,250 business miles driven × 0.655 =

$818.75.

• Add to this amount your parking

fees and tolls; and

• Enter the total on line 9. Do not

deduct depreciation, rent or lease payments, or your actual operating expenses.

If you deduct actual expenses:

• Include on line 9 the business portion of expenses for gasoline, oil, repairs, insurance, license plates, etc.; and

• Show depreciation on line 13 and

rent or lease payments on line 20a.

For details, see chapter 4 of Pub. 463.

Information on your vehicle. If you

claim any car and truck expenses, you

must provide certain information on the

use of your vehicle by completing one

of the following.

1. Complete Schedule C, Part IV, if

(a) you are claiming the standard mileage rate, you lease your vehicle, or your

vehicle is fully depreciated; and (b) you

are not required to file Form 4562 for

any other reason. If you used more than

one vehicle during the year, attach a

statement with the information requested

in Schedule C, Part IV, for each additional vehicle.

2. Complete Form 4562, Part V, if

you are claiming depreciation on your

vehicle or you are required to file Form

4562 for any other reason (see Line 13,

later).

Line 13

Line 10

Depreciation and section 179 expense

deduction. Depreciation is the annual

deduction allowed to recover the cost or

other basis of business or investment

property having a useful life substantially beyond the tax year. You can also depreciate improvements made to leased

business property. However, stock in

trade, inventories, and land are not depreciable. Depreciation starts when you

first use the property in your business or

for the production of income. It ends

when you take the property out of service, deduct all your depreciable cost or

other basis, or no longer use the property

in your business or for the production of

income. You can also elect under section

179 to expense part or all of the cost of

certain property you bought in 2023 for

use in your business. See the Instructions for Form 4562 and Pub. 946 to figure the amount to enter on line 13.

When to attach Form 4562. You must

complete and attach Form 4562 only if

you are claiming:

• Depreciation on property placed in

service during 2023;

• Depreciation on listed property

(defined later), regardless of the date it

was placed in service; or

• A section 179 expense deduction.

If you acquired depreciable property

for the first time in 2023, see Pub. 946.

Listed property. Listed property generally includes but is not limited to:

• Passenger automobiles weighing

6,000 pounds or less;

• Any other property used for transportation if the nature of the property

lends itself to personal use, such as motorcycles, pickup trucks, etc.; and

• Any property used for entertainment or recreational purposes (such as

photographic, phonographic, communication, and video recording equipment).

Enter the total commissions and fees for

the tax year. Do not include commissions or fees that are capitalized or deducted elsewhere on your return.

You must file Form 1099-NEC to report certain commissions and fees of

$600 or more during the year. See the

Instructions for Forms 1099-MISC and

1099-NEC for details.

Sales of property. Generally, commissions and other fees paid to facilitate the

sale of property must be capitalized.

However, if you are a dealer in property,

enter on line 10 the commissions and

fees you paid to facilitate the sale of that

property.

Note. A dealer in property is a person

who regularly sells property in the ordinary course of their trade or business.

For more information on the capitalization of commissions and fees, see the

examples under Regulations section

1.263(a)-1(e).

Line 11

Enter the total cost of contract labor for

the tax year. Contract labor includes

payments to persons you do not treat as

employees (for example, independent

contractors) for services performed for

your trade or business. Do not include

contract labor deducted elsewhere on

your return, such as contract labor includible on line 17, 21, 26, or 37. Also,

do not include salaries and wages paid

to your employees; instead, see Line 26,

later.

You must file Form 1099-NEC to report contract labor payments of $600 or

more during the year. See the Instructions for Forms 1099-MISC and

1099-NEC for details.

Line 12

Enter your deduction for depletion on

this line. If you have timber depletion,

attach Form T (Timber). See chapter 7

of Pub 225 for additional details.

Depletion is generally an item

of tax preference under the AlCAUTION ternative Minimum Tax (AMT).

See section 57.

!

Exception. Listed property does not

include photographic, phonographic,

communication, or video equipment

used exclusively in your trade or business or at your regular business establishment. For purposes of this exception,

a portion of your home is treated as a

regular business establishment only if

that portion meets the requirements under section 280A(c)(1) for deducting ex-

C-7

penses for the business use of your

home.

Recapture. See Line 6, earlier, if the

business use percentage of any listed

property dropped to 50% or less in 2023.

Line 14

Deduct contributions to employee benefit programs that are not an incidental

part of a pension or profit-sharing plan

included on line 19. Examples are accident and health plans, group-term life

insurance, and dependent care assistance

programs. If you made contributions on

your behalf as a self-employed person to

a dependent care assistance program,

complete Form 2441, Parts I and III, to

figure your deductible contributions to

that program.

You cannot deduct contributions you

made on your behalf as a self-employed

person for group-term life insurance.

Do not include on line 14 any contributions you made on your behalf as a

self-employed person to an accident and

health plan. However, you may be able

to deduct on Schedule 1 (Form 1040),

line 17, the amount you paid for health

insurance on behalf of yourself, your

spouse, and dependents, even if you do

not itemize your deductions. See the instructions for line 17, Schedule 1, contained within the Instructions for Form

1040.

You must reduce your line 14 deduction by the amount of any credit for

small employer health insurance premiums determined on Form 8941. See

Form 8941 and its instructions to determine which expenses are eligible for the

credit.

Line 15

Deduct premiums paid for business insurance on line 15. Deduct on line 14

amounts paid for employee accident and

health insurance. Do not deduct amounts

credited to a reserve for self-insurance

or premiums paid for a policy that pays

for your lost earnings due to sickness or

disability. For details, see Pub. 334,

chapter 8.

Lines 16a and 16b

Interest allocation rules. The tax treatment of interest expense differs depend-

C-8

ing on its type. For example, home

mortgage interest and investment interest are treated differently. “Interest allocation” rules require you to allocate

(classify) your interest expense so it is

deducted (or capitalized) on the correct

line of your return and receives the right

tax treatment. These rules could affect

how much interest you are allowed to

deduct on Schedule C.

Generally, you allocate interest expense by tracing how the proceeds of the

loan were used. See chapter 4 of Pub.

225, generally, for details.

Limitation on business interest. You

must file Form 8990 to deduct any interest expenses of this trade or business unless you are a small business taxpayer

(defined under Part III) or meet one of

the other filing exceptions listed in the

Instructions for Form 8990.

If you must file Form 8990, figure

the limit on your business interest expenses on Form 8990 before completing

lines 16a and 16b. Follow the instructions under How to report, later, but report the reduced interest on lines 16a

and 16b. The interest you can't deduct

this year will carry forward to next year

on Form 8990.

If you are a small business taxpayer

or meet one of the other filing exceptions for Form 8990, follow the instructions under How to report, later, and report all of your deductible interest on

lines 16a and 16b.

How to report. If you have a mortgage

on real property used in your business,

enter on line 16a the interest you paid

for 2023 to banks or other financial institutions for which you received a Form

1098 (or similar statement). If you did

not receive a Form 1098, enter the interest on line 16b.

If you paid more mortgage interest

than is shown on Form 1098, include the

amount on line 16a. Attach a statement

to your return explaining the difference

and enter “See attached” in the margin

next to line 16a. Don’t include mortgage

interest that must be capitalized, for example, added to basis. See Pub. 551, under Uniform Capitalization Rules, for

details.

The Tax Cuts and Jobs Act, section 11043, limited the deducCAUTION tion for mortgage interest paid

on home equity loans and lines of credit.

See section 163(h)(3)(F).

!

If you and at least one other person

(other than your spouse if you file a joint

return) were liable for and paid interest

on the mortgage and the other person received the Form 1098, include your

share of the interest on line 16b. Attach

a statement to your return showing the

name and address of the person who received the Form 1098. In the margin

next to line 16b, enter “See attached.”

If you paid interest in 2023 that also

applies to future years, deduct only the

part that applies to 2023.

Line 17

Include on this line fees charged by accountants and attorneys that are ordinary

and necessary expenses directly related

to operating your business.

Include fees for tax advice related to

your business and for preparation of the

tax forms related to your business. Also,

include expenses incurred in resolving

asserted tax deficiencies related to your

business.

For more information, see Pub. 334.

Line 18

Include on this line your expenses for

office supplies and postage.

Line 19

Enter your deduction for the contributions you made for the benefit of your

employees to a pension, profit-sharing,

or annuity plan (including SEP, SIMPLE, and SARSEP plans described in

Pub. 560). If the plan included you as a

self-employed person, enter the contributions made as an employer on your

behalf on Schedule 1 (Form 1040),

line 16, not on Schedule C.

This deduction may be subject to limitations. For more information on potential limitations, see Pub. 560.

In most cases, you must file the applicable form listed below if you maintain a pension, profit-sharing, or other

funded-deferred compensation plan. The

filing requirement is not affected by

whether or not the plan qualified under

the Internal Revenue Code, or whether

or not you claim a deduction for the current tax year. There is a penalty for failure to timely file these forms.

Form 5500-EZ. File this form if you

have a one-participant retirement plan

that meets certain requirements. A

one-participant plan is a plan that covers

only you (or you and your spouse).

Form 5500-SF. File this form electronically with the Department of Labor (at

efast.dol.gov) if you have a small plan

(fewer than 100 participants in most cases) that meets certain requirements.

Form 5500. File this form electronically with the Department of Labor (at

efast.dol.gov) for a plan that does not

meet the requirements for filing Form

5500-EZ or Form 5500-SF.

For details, see Pub. 560.

Lines 20a and 20b

If you rented or leased vehicles, machinery, or equipment, enter on line 20a the

business portion of your rental cost. But

if you leased a vehicle for a term of 30

days or more, you may have to reduce

your deduction by the inclusion amount.

See Leasing a Car in chapter 4 of Pub.

463 to figure this amount.

Enter on line 20b amounts paid to

rent or lease other property, such as office space in a building.

Line 21

Deduct the cost of incidental repairs and

maintenance that do not add to the property's value or appreciably prolong its

life. Do not deduct the value of your

own labor. Do not deduct amounts spent

to restore or replace property; they must

be capitalized.

Line 22

In most cases, you can deduct the cost of

materials and supplies only to the extent

you actually consumed and used them in

your business during the tax year (unless

you deducted them in a prior tax year).

However, if you had incidental materials

and supplies on hand for which you kept

no inventories or records of use, you can

deduct the cost of those you actually

purchased during the tax year, provided

that method clearly reflects income.

You can also deduct the cost of

books, professional instruments, equipment, etc., if you normally use them

within a year. However, if their usefulness extends substantially beyond a

year, you must generally recover their

costs through depreciation.

Line 23

governments. These taxes are not included in gross receipts or sales nor are

they a deductible expense. However, if

the state or local government allowed

you to retain any part of the sales tax

you collected, you must include that

amount as income on line 6.

• Other taxes and license fees not related to your business.

You can deduct the following taxes and

licenses on this line.

• State and local sales taxes imposed

on you as the seller of goods or services.

If you collected this tax from the buyer,

you must also include the amount collected in gross receipts or sales on

line 1.

• Real estate and personal property

taxes on business assets.

• Licenses and regulatory fees for

your trade or business paid each year to

state or local governments. But some licenses, such as liquor licenses, may

have to be amortized. See the Instructions for Form 4562, Depreciation and

Amortization, for more information on

amortization.

• Social security and Medicare taxes

paid to match required withholding from

your employees’ wages. Reduce your

deduction by the amount shown on

Form 8846, line 4.

• Federal unemployment tax paid.

• Federal highway use tax.

• Contributions to a state unemployment insurance fund or disability benefit

fund if they are considered taxes under

state law.

Do not reduce your deduction

for social security and MediCAUTION care taxes by the nonrefundable

and refundable portions of the credit for

sick and family leave wages that you

claimed on Form 944 or Form(s) 941.

Instead, you must report your credit for

qualified sick and family leave wages as

income on line 6.

Do not deduct the following.

• Federal income taxes, including

your self-employment tax. However,

you can deduct one-half of your self-employment tax on Schedule 1 (Form

1040), line 15 (but if filing Form

1040-NR, then only when covered under

the U.S. social security system due to an

international social security agreement).

• Estate and gift taxes.

• Taxes assessed to pay for improvements, such as paving and sewers.

• Taxes on your home or personal

use property.

• State and local sales taxes on property purchased for use in your business.

Instead, treat these taxes as part of the

cost of the property.

• State and local sales taxes imposed

on the buyer that you were required to

collect and pay over to state or local

Do not include expenses for meals on

this line. Instead, see Line 24b, later. Do

not include entertainment expenses on

this line.

!

Line 24a

Enter your expenses for lodging and

transportation connected with overnight

travel for business while away from

your tax home. In most cases, your tax

home is your main place of business, regardless of where you maintain your

family home. You can’t deduct expenses

paid or incurred in connection with employment away from home if that period

of employment exceeds 1 year. Also,

you cannot deduct travel expenses for

your spouse, your dependent, or any other individual unless that person is your

employee, the travel is for a bona fide

business purpose, and the expenses

would otherwise be deductible by that

person.

Instead of keeping records of your

actual incidental expenses, you can use

an optional method for deducting incidental expenses only if you did not pay

or incur meal expenses on a day you

were traveling away from your tax

home. The amount of the deduction is

$5 a day. Incidental expenses include

fees and tips given to porters, baggage

carriers, bellhops, hotel maids, stewards

or stewardesses and others on ships, and

hotel servants in foreign countries. They

do not include expenses for laundry,

cleaning and pressing of clothing, lodging taxes, or the costs of telegrams or

telephone calls. You cannot use this

C-9

method on any day that you use the

standard meal allowance (as explained

under Line 24b, later).

You can’t deduct expenses for attending a convention, seminar, or similar

meeting held outside the North American area unless the meeting is directly

related to your trade or business and it is

as reasonable for the meeting to be held

outside the North American area as

within it. These rules apply to both employers and employees. Other rules apply to luxury water travel.

For details on travel expenses, see

chapter 1 of Pub. 463.

Line 24b

Enter your deductible business meal expenses. This includes expenses for meals

while traveling away from home for

business. Your deductible business meal

expenses are a percentage of your actual

business meal expenses or standard meal

allowance. See Amount of deduction,

later, for the percentage that applies to

your actual meal expenses or standard

meal allowance. In most cases, the percentage is 50%.

Do not include entertainment expenses on this line.

Business meal expenses. You can deduct a percentage of the actual cost of a

meal if the following conditions are met.

• The meal expense was an ordinary

and necessary expense in carrying on

your trade or business.

• The expense was not lavish or extravagant under the circumstances.

• You or your employee was present

at the meal.

• The meal was provided to a current or potential business customer, client, consultant, or similar business contact.

• In the case of food or beverages

provided during or at an entertainment

event, the food and beverages were purchased separately from the entertainment, or the cost of the food and beverages was stated separately from the cost

of the entertainment on one or more

bills, invoices, or receipts.

You cannot avoid the entertainment disallowance rule by inCAUTION flating the amount charged for

food and beverages.

!

C-10

See Notice 2021-25 for examples and

more information. Notice 2021-25 is

available

at

IRS.gov/irb/

2021-17_IRB#NOT-2021-25.

Standard meal allowance. Instead of

deducting the actual cost of your meals

while traveling away from home, you

can use the standard meal allowance for

your daily meals and incidental expenses. Under this method, you deduct a

specified amount, depending on where

you travel, instead of keeping records of

your actual meal expenses. However,

you must still keep records to prove the

time, place, and business purpose of

your travel.

The standard meal allowance is the

federal meals and incidental expenses

(M&IE) rate. You can find these rates

for locations inside and outside the continental United States by going to the

General Services Administration's website at GSA.gov/travel/plan-book/perdiem-rates/mie-breakdown.

See chapter 2 of Pub. 463 for details

on how to figure your deduction using

the standard meal allowance, including

special rules for partial days of travel.

For special per diem rates and rules of

high cost locales, see IRS.gov/irb/

2021-38_IRB#NOT-2021-52.

Amount of deduction. For business

meals, you can deduct 50% of your business meal expenses, including meals incurred while away from home on business. However, for individuals subject to

the Department of Transportation (DOT)

hours of service limits, the percentage

for other business meals is increased to

80% for business meals consumed during, or incident to, any period of duty for

which those limits are in effect. Individuals subject to the DOT hours of service

limits include the following.

• Certain air transportation workers

(such as pilots, crew, dispatchers, mechanics, and control tower operators)

who are under Federal Aviation Administration regulations.

• Interstate truck operators who are

under DOT regulations.

• Certain merchant mariners who are

under Coast Guard regulations.

However, you can fully deduct meals

and incidentals furnished or reimbursed

to an employee if you properly treat the

expense as wages subject to withholding. You can also fully deduct meals and

incidentals provided to a nonemployee

to the extent the expenses are includible

in the gross income of that person and

reported on Form 1099-NEC. See chapter 5 of Pub. 15 (Circular E), Employer’s

Tax Guide, for details and other exceptions. See also chapter 8 of Pub. 334.

Daycare providers. If you qualify as a

family daycare provider, you can use the

standard meal and snack rates, instead of

actual costs, to figure the deductible cost

of meals and snacks provided to eligible

children. If you receive reimbursement

under a food program of the Department

of Agriculture, only deduct the cost of

food that exceeds reimbursement, if any.

See Pub. 587 for details, including recordkeeping requirements.

Line 25

Deduct utility expenses only for your

trade or business.

Local telephone service. If you used

your home phone for business, do not

deduct the base rate (including taxes) of

the first phone line into your residence.

But you can deduct any additional costs

you incurred for business that are more

than the base rate of the first phone line.

For example, if you had a second line,

you can deduct the business percentage

of the charges for that line, including the

base rate charges.

Line 26

Enter the total salaries and wages for the

tax year reduced by the amount of the

following credit(s), if applicable.

• Work Opportunity Credit (Form

5884).

• Empowerment Zone Employment

Credit (Form 8844).

• Credit for Employer Differential

Wage Payments (Form 8932).

• Employer Credit for Paid Family

and Medical Leave (Form 8994).

Do not reduce your deduction for any

portion of a credit that was passed

through to you from a pass-through entity. See the instructions for the credit

form for more information.

Do not include salaries and wages deducted elsewhere on your return or

amounts paid to yourself.

If you provided taxable fringe

benefits to your employees,

CAUTION such as personal use of a car,

do not deduct as wages the amount applicable to depreciation and other expenses claimed elsewhere.

ularly for daycare, or regularly for storage of inventory or product samples, by

$5. The area you use to figure your deduction cannot exceed 300 square feet.

You cannot use the simplified method to

figure a deduction for rental use of your

home.

tion for any additional home. If one or

more of the homes were not used for the

entire year (for example, you moved

during the year), see Part-year use or

area changes (for simplified method only), later, and Columns (a) and (b) in the

Instructions for Form 8829.

In most cases, you are required to file

Form W-2 for each employee. See the

General Instructions for Forms W-2 and

W-3.

Electing to use the simplified method. You choose whether or not to use

the simplified method each tax year.

Make the election by using the simplified method to figure the deduction for

the qualified business use of a home on

a timely filed, original federal income

tax return for that year. An election for a

year, once made, is irrevocable. A

change from using the simplified method in one year to actual expenses in a

succeeding year, or vice versa, is not a

change in method of accounting and

does not require the consent of the Commissioner.

If you share your home with someone

else who uses the home for a separate

business that qualifies for this deduction,

each of you may make your own election, but not for the same portion of the

home.

If you conduct more than one business that qualifies for this deduction in

your home, your election to use the simplified method applies to all your qualified business uses of your home. You are

limited to a maximum of 300 square feet

for all of the businesses you conduct in

your home that qualify for this deduction. Allocate the actual square footage

used (up to the maximum 300 square

feet) among your qualified business uses

in any reasonable manner you choose,

but you may not allocate more square

feet to a qualified business use than you

actually use in that business.

Other requirements must still be

met. You must still meet all the use requirements to claim a deduction for

business use of the home. The simplified

method is only an alternative to the calculation, allocation, and substantiation

of actual expenses. The simplified method is not an alternative to the exclusivity

and other tests that must be met in order

to qualify for this deduction. For more

information about qualifying business

uses, see Qualifying for a Deduction in

Pub. 587.

!

Line 27b

Energy efficient commercial buildings

deduction. You may be able to deduct

part or all of the expenses of modifying

an existing commercial building to make

it energy efficient. For details, see Form

7205 and its instructions. Attach Form

7205 to your tax return.

Line 30

Business use of your home. You may

be able to deduct certain expenses for

business use of your home, subject to

limitations. To claim a deduction for

business use of your home, use Form

8829, or you can elect to determine the

amount of the deduction using a simplified method.

If you have a business use of another

home, you can’t use the simplified method for that home. You can use the Form

8829 to claim expenses for business use

of the other home.

For additional information about

claiming this deduction, see Pub. 587.

Note. Line 30 doesn't apply to filers of

Form 1040-SS.

If you are not using the simpliTIP fied method to determine the

amount of expenses you may

deduct for business use of a home, do

not complete the additional entry spaces

on line 30 for total square footage of

your home and of the part of the home

used for business. Instead, include the

amount from line 36 of your Form 8829

on line 30.

Simplified method. The simplified

method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will

figure your deduction by multiplying the

area (measured in square feet) used regularly and exclusively for business, reg-

If you used your home for more

than one business, you will

CAUTION need to file a separate Schedule C for each business. Do not combine

your deductions for each business use

on a single Schedule C.

!

Business use of more than one

home. You may have used more than

one home in your business. If you used

more than one home for the same business during 2023, you may elect to use

the simplified method for only one

home; you must file a Form 8829 to

claim a business use of the home deduc-

Gross

income

limitation. The

amount of your deduction is still limited

to the gross income derived from qualified business use of the home reduced

by the business deductions that are not

related to your use of the home. If this

limitation reduces the amount of your

deduction, you cannot carry over the difference to another tax year.

Carryover of actual expenses from

Form 8829. If you used Form 8829 in a

prior year, and you had actual expenses

that you could carry over to the next

year, you cannot claim those expenses if

you are using the simplified method. Instead, the actual expenses from Form

8829 that were not allowed will be carried over to the next year that you use

actual expenses to figure your deduction.

Depreciation of home. You cannot

deduct any depreciation (including any

additional first-year depreciation) or section 179 expense for the portion of your

home that is used in a qualified business

use if you figure the deduction for the

business use of your home using the

simplified method. The depreciation deduction allowable for that portion of the

home for that year is deemed to be zero.

C-11

Keep for Your Records

Simplified Method Worksheet

1.

Enter the amount of the gross income limitation. See the Instructions for the Simplified Method Worksheet (below) . . . . . . .

1.

2.

Allowable square footage for the qualified business use. Do not enter more than 300 square feet. See the Instructions for the

Simplified Method Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

3.

Simplified method amount

a.

Maximum allowable amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a.

b.

For daycare facilities not used exclusively for business, see the instructions for line 3b of this worksheet and enter the

decimal amount from the Daycare Facility Worksheet; otherwise, enter 1.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b.

c.

Multiply line 3a by line 3b and enter the result to 2 decimal places . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c.

4.

Multiply line 2 by line 3c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

5.

Allowable expenses using the simplified method. Enter the smaller of line 1 or line 4 here and include that amount on

Schedule C, line 30. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6.

$5

Carryover of unallowed expenses from a prior year that are not allowed in 2023.

a.

Operating expenses. Enter the amount from your last Form 8829, line 43 (line 42 if before 2018). See the Instructions for

the Simplified Method Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6a.

b.

Excess casualty losses and depreciation. Enter the amount from your last Form 8829, line 44 (line 43 if before 2018). See

the Instructions for the Simplified Method Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6b.

Instructions for the Simplified Method Worksheet

Use this worksheet to figure the amount of expenses you may deduct for a qualified business use of a home if you are electing to use the simplified method for

that home. If you are not electing to use the simplified method, use Form 8829.

Line 1. If all gross income from your trade or business is from this qualified business use of your home, figure your gross income limitation as follows.

A.

B.

C.

D.

E.

Enter the amount from Schedule C, line 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enter any gain derived from the business use of your home and shown on Form 8949 (and included on Schedule D) or Form

4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Add lines A and B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enter the total amount of any losses (as a positive number) shown on Form 8949 (and included on Schedule D) or Form 4797 that are

allocable to the business, but not allocable to the business use of the home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross income limitation. Subtract line D from line C. Enter the result here and on line 1 of the simplified method worksheet . . . . . . .

If some of the income is from a place of business other than your home, you must first determine the part of your gross income (Schedule C, line 7, and gains

from Form 8949, Schedule D, and Form 4797) from the business use of your home. In making this determination, consider the amount of time you spent at each

location as well as other facts. After determining the part of your gross income from the business use of your home, subtract from that amount the total expenses

shown on Schedule C, line 28, plus any losses shown on Form 8949 (and included on Schedule D) or Form 4797 that are allocable to the business in which you

use your home but that are not allocable to the business use of the home. Enter the result on line 1 of the simplified method worksheet.

Note: If you had more than one home in which you conducted this business during the year, include only the income earned and the deductions attributable to

that income during the period you owned the home for which you elected to use the simplified method.

Line 2. If you used the same area for the entire year, enter the smaller of the square feet you actually used or 300. If you and your spouse conducted the business

as a qualified joint venture, split the square feet between you and your spouse in the same manner you split your other tax attributes. If you shared space with

someone else, used the home for business for only part of the year, or the area you used changed during the year, see Figuring your allowable expenses for

business use of the home, before entering an amount on this line. Do not enter more than 300 square feet or, if applicable, the average monthly allowable square

footage on this line. See Part-year use or area changes (for simplified method only), later, for more information on how to figure your average monthly

allowable square footage.

Line 3b. If your qualified business use is providing daycare, you may need to account for the time that you used the same part of your home for other purposes.

If you used the part of your home exclusively and regularly for providing daycare, enter 1.0 on line 3b. If you did not use the part of your home exclusively for

providing daycare, complete the Daycare Facility Worksheet to figure what number to enter on line 3b.

Line 6. Because you are using the simplified method this year, you cannot deduct the amounts you entered on lines 6a and 6b this year. If you file Form 8829 in

a later year for your qualified business use of this home, you will be able to include these expenses when you figure your deduction.

6a. If you did not file a 2022 Form 8829, then your carryover of prior year operating expenses is the amount of operating expenses shown

in Part IV of the last Form 8829, if any, that you filed to claim a deduction for business use of the home.

6b. If you did not file a 2022 Form 8829, then your carryover of prior year excess casualty losses and depreciation is the amount of excess

casualty losses and depreciation shown in Part IV of the last Form 8829, if any, that you filed to claim a deduction for business use of

the home.

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Daycare Facility Worksheet (for simplified method)

Keep for Your Records

1. Multiply days used for daycare during the year by hours used per day

1.

...................................

2. Total hours available for use during the year. See the Instructions for the Daycare Facility Worksheet

...............

2.

3. Divide line 1 by line 2. Enter the result as a decimal amount here and on line 3b of the Simplified Method

Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

Instructions for the Daycare Facility Worksheet

Use this worksheet to figure the percentage to use on line 3b of the Simplified Method Worksheet. If you do not use the area of your home exclusively for daycare, you

must reduce the prescribed rate before figuring your deduction using the simplified method.

TIP

If you used at least 300 square feet for daycare regularly and exclusively during the year, then you do not need to complete this worksheet. This worksheet is

only needed if you did not use the allowable area exclusively for daycare.

Line 1. Enter the total number of hours the facility was used for daycare during the year.

Example. Your home is used Monday through Friday for 12 hours per day for 250 days during the year. It is also used on 50 Saturdays for 8 hours a day. Enter 3,400 hours

on line 4 (3,000 hours for weekdays plus 400 hours for Saturdays).

Line 2. If you used your home for daycare during the entire year, multiply 365 days (366 for a leap year) by 24 hours, and enter the result.

If you started or stopped using your home for daycare during the year, you must prorate the number of hours based on the number of days the home was available for

daycare. Multiply 24 hours by the number of days available and enter that result.

Although you cannot deduct

TIP any depreciation or section 179

expense for the portion of your

home that is a qualified business use because you elect to use the simplified

method, you may still claim depreciation

or the section 179 expense deduction on

other assets (for example, furniture and

equipment) used in the qualified business use of your home.

Figuring your allowable expenses for

business use of the home. You will figure the deduction using Form 8829 or

the Simplified Method Worksheet, or

both.

You may not use the simplified

method and also file Form

CAUTION 8829 for the same qualified

business use of the same home.

!

Using Form 8829. Use Form 8829

to figure and claim this deduction for a

home if you are not or cannot use the

simplified method for that home. For information about claiming this deduction

using Form 8829, see the Instructions

for Form 8829 and Pub. 587.

Using the simplified method. Use

the Simplified Method Worksheet in

these instructions to figure your deduction for a qualified business use of your

home if you are electing to use the simplified method for that home.

Shared use (for simplified method

only). If you share your home with

someone else who uses the home for a

separate business that also qualifies for

this deduction, you may not include the

same square feet to figure your deduction as the other person. You must allocate the shared space between you and

the other person in a reasonable manner.

Example. Taylor and Logan are

roommates. Taylor uses 300 square feet

of their home for a qualified business

use. Logan uses 200 square feet of their

home for a separate qualified business

use. The qualified business uses share

100 square feet. In addition to the portion that they do not share, Taylor and

Logan can both claim 50 of the 100

square feet or divide the 100 square feet

between them in any reasonable manner.

If divided evenly, Taylor could claim

250 square feet using the simplified

method and Logan could claim 150

square feet.

Part-year use or area changes (for

simplified method only). If your qualified business use was for a portion of the

tax year (for example, a seasonal business, a business that begins during the

year, or you moved during the year) or

you changed the square footage of your

qualified business use, your deduction is

limited to the average monthly allowa-

ble square footage. You figure the average monthly allowable square footage

by adding the amount of allowable

square feet you used in each month and

dividing the sum by 12.

When determining the average

monthly allowable square footage, you

cannot take more than 300 square feet

into account for any one month. Additionally, if your qualified business use

was less than 15 days in a month, use -0for that month.

Example 1. Finley files a federal income tax return on a calendar year basis.

On July 20, Finley began using 400

square feet of the home for a qualified

business use. Finley continued to use the

400 square feet until the end of the year.

Finley's average monthly allowable

square footage is 125 square feet (300

square feet for August through December divided by the number of months in

the year ((300 + 300 + 300 + 300 +

300)/12)).

Example 2. Riley files a federal income tax return on a calendar year basis.

On April 20, Riley began using 100

square feet of the home for a qualified

business use. On August 5, Riley expanded the area of qualified business use to

350 square feet. Riley continued to use

the 350 square feet until the end of the

year. Riley's average monthly allowable

C-13

square footage is 150 square feet (100

square feet for May through July and

300 square feet for August through December divided by the number of

months in the year ((100 + 100 +100 +

300 + 300 + 300 + 300 + 300)/12)).

Example 3. Carter files a federal income tax return on a calendar year basis.

From January 1 through July 16, Carter

used 300 square feet of the home for a

qualified business use. On July 17, Carter moved to a new home and immediately began using 200 square feet of the

new home for the same qualified business use. Using the simplified method to

deduct expenses for the qualified business use for the previous home, Carter’s

average monthly allowable square footage is 175 square feet (300 square feet

for January through July divided by the

number of months in the year ((300 +

300 + 300 + 300 + 300 + 300 + 300)/

12)). Carter also prepared Form 8829 to

deduct the actual expenses associated

with the qualified business use of the

new home.

Once you have determined your allowable square footage, enter the result

on line 2 of the Simplified Method

Worksheet.

If you moved during the year,

your average allowable square

CAUTION footage will generally be less

than 300.

!

You can use the Area Adjust-

TIP ment Worksheet in Pub. 587 to

help you determine the allowable square footage to enter on line 2 of

the Simplified Method Worksheet.

Reporting your expenses for business

use of the home. If you did not use the

simplified method, include the amount

from line 36 of Form 8829 on line 30 of

the Schedule C you are filing for that

business.

If you used the simplified method. If

you elect to use the simplified method

for the business use of a home, complete

the additional entry spaces on line 30 for

that home only. Include the amount from

line 5 of the Simplified Method Worksheet on line 30.

If you itemize your deductions on

Schedule A, you may deduct your mortgage interest, real estate taxes, and casualty losses on Schedule A as if you did

C-14

not use your home for business. You

cannot deduct any excess mortgage interest, excess real estate taxes, or excess

casualty losses on Schedule C for this

home.

Use Part II of Schedule C to deduct

business expenses that are unrelated to

the qualified business use of the home

(for example, expenses for advertising,

wages, or supplies, or depreciation of

equipment or furniture).

Deduction figured on multiple

forms. If you used more than one home

for a business during the year, use a

Form 8829 for each home or use the

simplified method for one home and

Form 8829 for any other home. Combine the amount you figured using the

simplified method and the amounts you

figured on your Forms 8829, and then

enter the total on line 30 of the Schedule C for that business.

Line 31

Figuring your net profit or loss. If

your expenses (including the expenses

you report on line 30) are more than

your gross income, don’t enter your loss

on line 31 until you have applied the

at-risk rules and the passive activity loss

rules. To apply these rules, follow the instructions under Line 32, later, and the

Instructions for Form 8582. After applying those rules, the amount on line 31

will be your loss, and it may be smaller

than the amount you figured by subtracting line 30 from line 29.

If your gross income is more than

your expenses (including the expenses

you report on line 30), and you don’t

have prior year unallowed passive activity losses, subtract line 30 from line 29.

The result is your net profit.

If your gross income is more than

your expenses (including the expenses

you report on line 30), and you have prior year unallowed passive activity losses, don’t enter your net profit on line 31

until you have figured the amount of prior year unallowed passive activity losses

you may claim this year for this activity.

Use Form 8582 to figure the amount of

prior year unallowed passive activity

losses you may include on line 31. Be

sure to indicate that you are including

prior year passive activity losses by entering "PAL" to the left of the entry

space.

If you checked the "No" box on line

G, see the Instructions for Form 8582;

you may need to include information

from this schedule on Form 8582, even

if you have a net profit.

Rental real estate activity. Unless

you are a qualifying real estate professional, a rental real estate activity is a

passive activity, even if you materially

participated in the activity. If you have a

loss, you may need to file Form 8582 to

apply a limitation that may reduce your

loss. See the Instructions for Form 8582.

Reporting your net profit or loss.

Once you have figured your net profit or

loss, report it as follows.

If you enter a loss on line 31,

you may have an excess busiCAUTION ness loss. Use Form 461 to figure your excess business loss.

!

Individuals. Enter your net profit or

loss on line 31 and include it on Schedule 1 (Form 1040), line 3. Also, include

your net profit or loss on Schedule SE,

line 2. However, if you are a statutory

employee or notary public, see Statutory

employees or Notary public, later.

Nonresident aliens. Enter your net

profit or loss on line 31 and include it on

Schedule 1 (Form 1040), line 3. You

should also include this amount on

Schedule SE, line 2, if you are covered

under the U.S. social security system

due to an international social security

agreement currently in effect. See the Instructions for Schedule SE for information on international social security

agreements. However, if you are a statutory employee or notary public, see Statutory employees or Notary public, later.

Trusts and estates. Enter the net

profit or loss on line 31 and include it on

Form 1041, line 3.

Statutory employees. Enter your net

profit or loss on line 31 and include it on

Schedule 1 (Form 1040), line 3. However, do not report this amount on Schedule SE, line 2. If you were a statutory

employee and you are required to file

Schedule SE because of other self-employment income, see the Instructions

for Schedule SE.

Notary public. Do not enter your net

profit from line 31 on Schedule SE,

line 2, unless you are required to file

Schedule SE because you have other

self-employment income. See the Instructions for Schedule SE.

You can deduct one-half of your

TIP self-employment tax on Schedule 1 (Form 1040), line 15. See

the Instructions for Schedule SE for details.

Community income. If you and your

spouse had community income and are

filing separate returns, see the Instructions for Schedule SE before figuring

self-employment tax.

Earned income credit (EIC). If you

have a net profit on line 31, this amount

is earned income and may qualify you

for the EIC.

To figure your EIC, use the instructions for Form 1040,

CAUTION line 27. Complete all applicable steps plus Worksheet B. If you are required to file Schedule SE, remember to

enter one-half of your self-employment

tax in Part 1, line 1d, of Worksheet B.

!

Line 32

You do not need to complete

TIP line 32 if line 7 is more than the

total of lines 28 and 30.

At-risk rules. In most cases, if you

have a business loss and amounts invested in the business for which you are not

at risk, complete Form 6198 to apply a

limitation that may reduce your loss.

The at-risk rules generally limit the

amount of loss (including loss on the

disposition of assets) you can claim to

the amount you could actually lose in

the business.

Check box 32b if you have amounts

invested in this business for which you

are not at risk, such as the following.

• Nonrecourse loans used to finance

the business, to acquire property used in

the business, or to acquire the business

that are not secured by your own property (other than property used in the business), and for which you are not personally responsible to repay. However, there

is an exception for certain nonrecourse

financing borrowed by you in connection with holding real property. See the

Instructions for Form 6198 and Pub.

925.

• Cash, property, or borrowed

amounts used in the business (or contributed to the business, or used to acquire the business) that are protected

against loss by a guarantee, stop-loss

agreement, or other similar arrangement

(excluding casualty insurance and insurance against tort liability).

• Amounts borrowed for use in the

business from a person who has an interest in the business, other than as a creditor, or who is related under section

465(b)(3)(C) to a person (other than

you) having such an interest.

Figuring your loss. Before determining

your loss, check box 32a or 32b to indicate whether the loss from your business

activity is limited by the at-risk rules.

Follow the instructions, next, that apply

to your box 32 activity.

Note. Line 32 doesn't apply to filers of

Form 1040-SS.

All investment is at risk. If all

amounts are at risk in this business,

check box 32a. If you answered “Yes”

on line G, your loss will not be reduced

by the at-risk rules or the passive activity loss rules. See Line 31, earlier, for

how to report your loss.

If you answered “No” on line G, you

may need to complete Form 8582 to figure your loss to enter on line 31. See the

Instructions for Form 8582 for details.

Some investment is not at risk. If

some investment is not at risk, check

box 32b; the at-risk rules apply to your

loss. Be sure to attach Form 6198 to

your return.

If you answered "Yes" on line G,

complete Form 6198 to figure the loss to

enter on line 31. The passive activity

loss rules do not apply. See Line 31, earlier, for how to report your loss.

If you answered "No" on line G, the

passive activity loss rules may apply.

First, complete Form 6198 to figure the

amount of your profit or (loss) for the

at-risk activity, which may include

amounts reported on other forms and

schedules, and the at-risk amount for the

activity. Follow the Instructions for

Form 6198 to determine how much of

your Schedule C loss will be allowed.

After you figure the amount of your loss

that is allowed under the at-risk rules,

you may need to complete Form 8582 to

figure the passive activity loss to enter

on line 31. See the Instructions for Form

8582 for details.

If you checked box 32b because

some investment is not at risk

CAUTION and you do not attach Form

6198, the processing of your return may

be delayed.

!

At-risk loss deduction. Any loss from

this business not allowed for 2023 only

because of the at-risk rules is treated as a

deduction allocable to the business in

2024.

More information. For details, see the

Instructions for Form 6198 and Pub.

925.

Part III. Cost of

Goods Sold

In most cases, if you engaged in a trade

or business in which the production, purchase, or sale of merchandise was an income-producing factor, you must take

inventories into account at the beginning

and end of your tax year.

Exception for small business taxpayers. If you are a small business taxpayer, you can choose not to keep an inventory, but you must still use a method of

accounting for inventory that clearly reflects income. If you choose not to keep

an inventory, you won't be treated as

failing to clearly reflect income if your

method of accounting for inventory

treats inventory as non-incidental material or supplies, or conforms to your financial accounting treatment of inventories. If, however, you choose to keep an

inventory, you must generally value the

inventory each year to determine your

cost of goods sold in Part III of Schedule C.

Small business taxpayer. You qualify as a small business taxpayer if you (a)

have average annual gross receipts of

$29 million or less for the 3 prior tax

years, and (b) are not a tax shelter (as

defined in section 448(d)(3)).

If your business has not been in existence for all of the 3-tax-year period

used in figuring average gross receipts,

base your average on the period it has

existed, and if your business has a predecessor entity, include the gross receipts

of the predecessor entity from the

3-tax-year period when figuring average

C-15

gross receipts. If your business (or predecessor entity) had short tax years for

any of the 3-tax-year period, annualize

your business' gross receipts for the

short tax years that are part of the

3-tax-year period.

See Pub. 538 for more information.

Treating inventory as non-incidental

material or supplies. If you account for

inventories as materials and supplies

that are not incidental, you deduct the

amounts paid to acquire or produce the

inventoriable items (treated as materials

and supplies) in the year in which they

are first used or consumed in your operations.

Financial accounting treatment of

inventories. Your financial accounting

treatment of inventories is determined

with regard to the method of accounting

you use in your applicable financial

statement (as defined in section 451(b)

(3)) or, if you do not have an applicable

financial statement, with regard to the

method of accounting you use in your

books and records that have been prepared in accordance with your accounting procedures.

More information. For more information about this exception for small

businesses using this method of accounting for inventoriable items, see Pub.

538.

Changing your method of accounting for inventory. If you want to

change your method of accounting for

inventory, file Form 3115. For details,

see Line F, earlier.

Certain direct and indirect expenses may have to be capitalCAUTION ized or included in inventory.

See Part II, earlier. See Pub. 538 for additional information.

!

Line 33

Your inventories can be valued at cost,

the lower of cost or market, or any other

method approved by the IRS.

Line 33 doesn't apply to filers of

Form 1040-SS.

Line 35

If you are changing your method of accounting beginning with 2023, refigure

last year's closing inventory using your

C-16

new method of accounting and enter the

result on line 35. If there is a difference

between last year's closing inventory

and the refigured amount, attach an explanation and take it into account when

figuring your section 481(a) adjustment.

For details, see the example under Line

F, earlier.

Part IV. Information

on Your Vehicle

Line 44b

In most cases, commuting is travel between your home and a work location. If

you converted your vehicle during the

year from personal to business use (or

vice versa), enter your commuting miles

only for the period you drove your vehicle for business.

Travel that meets any of the following conditions isn't commuting; it is

considered deductible business travel.

• You have at least one regular work

location away from your home and the

travel is to a temporary work location in

the same trade or business, regardless of

the distance. Generally, a temporary

work location is one where your

employment is expected to last 1 year or

less. See Pub. 463 for more details.

• The travel is to a temporary work

location outside the metropolitan area

where you live and normally work.

• Your home is your principal place

of business under section 280A(c)(1)(A)

(for purposes of deducting expenses for

business use of your home) and the

travel is to another work location in the

same trade or business, regardless of

whether that location is regular or

temporary and regardless of distance.

Line 47

Specific recordkeeping rules apply to

car or truck expenses. For more information about what records you must

keep, see Pub. 463.

You may maintain written evidence

by using an electronic storage system

that meets certain requirements. For

more information about electronic storage systems, see Pub. 583.

Part V. Other

Expenses. Line 48

Include all ordinary and necessary business expenses not deducted elsewhere

on Schedule C. List the type and amount

of each expense separately in the space

provided. Enter the total on lines 48 and

27a. Do not include the cost of business

equipment or furniture; replacements or

permanent improvements to property; or

personal, living, and family expenses.

Do not include charitable contributions.

Also, you cannot deduct fines or penalties paid to a government for violating

any law. For details on business expenses, see Pub. 334, chapter 8.

Amortization. Include amortization in

this part. For amortization that begins in

2023, complete and attach Form 4562.

You can amortize such costs as:

• The cost of pollution-control facilities;

• Amounts paid for research and experimentation;

• Amounts paid to acquire, protect,

expand, register, or defend trademarks

or trade names; or

• Goodwill and certain other intangibles.

In most cases, you cannot amortize

real property construction period interest

and taxes. Special rules apply for allocating interest to real or personal property produced in your trade or business.

For a complete list, see the instructions for Form 4562, Part VI.

At-risk loss deduction. Any loss from

this business that was not allowed last

year because of the at-risk rules is treated as a deduction allocable to this business in 2023.

Bad debts. Include debts and partial

debts from sales or services that were included in income and are definitely

known to be worthless. If you later collect a debt that you deducted as a bad

debt, include it as income in the year

collected. For details, see Pub. 334,

chapter 8.

Business startup costs. If your business began in 2023, you can elect to deduct up to $5,000 of certain business

startup costs. The $5,000 limit is reduced (but not below zero) by the

amount by which your total startup costs

exceed $50,000. Your remaining startup

costs can be amortized over a

180-month period, beginning with the

month the business began.

For details, see IRS.gov/Newsroom/

Heres-how-businesses-can-deductstartup-costs-from-their-federal-taxes.

For amortization that begins in 2023,

complete and attach Form 4562.

Deduction for removing barriers to

individuals with disabilities and the

elderly. You may be able to deduct up

to $15,000 of costs paid or incurred in

2023 to remove architectural or transportation barriers to individuals with

disabilities and the elderly. However,

you cannot take both a credit (on Form

8826) and a deduction for the same expenditures.

De minimis safe harbor for tangible

property. Generally, you must capitalize costs to acquire or produce real or

tangible personal property used in your

trade or business, such as buildings,

equipment, or furniture. However, if you

elect to use the de minimis safe harbor

for tangible property, you may deduct de

minimis amounts paid to acquire or produce certain tangible property if these

amounts are deducted by you for financial accounting purposes or in keeping

your books and records.

If you have an applicable financial

statement, you may use this safe harbor

to deduct amounts paid for tangible

property up to $5,000 per item or invoice. If you don't have an applicable financial statement, you may use the de

minimis safe harbor to deduct amounts

paid for tangible property up to $2,500

per item or invoice.

Only deduct these amounts as other

expenses. Don't include these amounts

on any other line.

For details on making this election

and requirements for using the de minimis safe harbor for tangible property,

see chapter 8 of Pub. 334.

Film and television and live theatrical

production expenses. You can elect to

deduct costs of certain qualified film and

television productions or qualified live

theatrical productions. See section 181,

for details.

Forestation and reforestation costs.

Reforestation costs are generally capital

expenditures. However, for each qualified timber property, you can elect to expense up to $10,000 ($5,000 if married

filing separately) of qualifying reforestation costs paid or incurred in 2023.

You can elect to amortize the remaining costs over 84 months. For amortization that begins in 2023, complete and

attach Form 4562.

The amortization election and the expense election don’t apply to trusts. For

details on reforestation expenses, see

chapter 4 of Pub. 225.

Paperwork Reduction Act Notice. We

ask for the information on Schedule C

(Form 1040) to carry out the Internal

Revenue laws of the United States. You

are required to give us the information.

We need it to ensure that you are complying with these laws and to allow us to

figure and collect the right amount of

tax.

You are not required to provide the

information requested on a form that is

subject to the Paperwork Reduction Act

unless the form displays a valid OMB

control number. Books or records relating to a form or its instructions must be

retained as long as their contents may

become material in the administration of

any Internal Revenue law. Generally, tax

returns and return information are confidential, as required by section 6103.

The time needed to complete and file

Schedule C (Form 1040) will vary depending on individual circumstances.

The estimated burden for individual taxpayers filing this form is included in the

estimates shown in the instructions for

their individual income tax return. The

estimated burden for all other taxpayers

who file this form is approved under

OMB control number 1545-1974 and is

shown next.

Recordkeeping . . . . . . . . .

3 hr., 36 min.

Learning about the law or the

form . . . . . . . . . . . . . . .

1 hr., 19 min.

Preparing the form . . . . . . .

1 hr., 39 min.

Copying, assembling, and sending

the form to the IRS . . . . . .

34 min.

If you have comments concerning the

accuracy of these time estimates or suggestions for making this form simpler,

we would be happy to hear from you.

See the instructions for the tax return

with which this form is filed.

C-17

Principal Business or

Professional Activity

Codes

North American Industry

Classification System (NAICS).

These codes for the Principal Business or Professional

Activity classify sole proprietorships by the type of

activity they are engaged in to facilitate the

administration of the Internal Revenue Code. These

Accommodation, Food

Services, & Drinking Places

Accommodation

721310 Rooming & boarding houses,

dormitories, & workers' camps

721210 RV (recreational vehicle) parks

& recreational camps

721100 Traveler accommodation

(including hotels, motels, & bed

& breakfast inns)

Food Services & Drinking Places

722514 Cafeterias, grill buffets, &

buffets

722410 Drinking places (alcoholic

beverages)

722511 Full-service restaurants

722513 Limited-service restaurants

722515 Snack & non-alcoholic beverage

bars

722300 Special food services (including

food service contractors &

caterers)

Administrative & Support and

Waste Management &

Remediation Services

Administrative & Support Services

561430 Business service centers

(including private mail centers

& copy shops)

561740 Carpet & upholstery cleaning

services

561440 Collection agencies

561450 Credit bureaus

561410 Document preparation services

561300 Employment services

561710 Exterminating & pest control

services

561210 Facilities support (management)

services

561600 Investigation & security services

561720 Janitorial services

561730 Landscaping services

561110 Office administrative services

561420 Telephone call centers

(including telephone answering

services & telemarketing

bureaus)

561500 Travel arrangement &

reservation services

561490 Other business support services

(including repossession services,

court reporting, & stenotype

services)

561790 Other services to buildings &

dwellings

561900 Other support services

(including packaging & labeling

services, & convention & trade

show organizers)

Waste Management & Remediation

Services

562000 Waste management &

remediation services

Agriculture, Forestry, Hunting, &

Fishing

112900

114110

C-18

Animal production (including

breeding of cats and dogs)

Fishing

six-digit codes are based on the North American

Industry Classification System (NAICS).

Select the category that best describes your

primary business activity (for example, Real Estate).

Then select the activity that best identifies the principal

source of your sales or receipts (for example, real

113000

Forestry & logging (including

forest nurseries & timber tracts)

114210 Hunting & trapping

Support Activities for Agriculture &

Forestry

115210 Support activities for animal

production (including farriers)

115110 Support activities for crop

production (including cotton

ginning, soil preparation,

planting, & cultivating)

115310 Support activities for forestry

Arts, Entertainment, &

Recreation

Amusement, Gambling, & Recreation

Industries

713100 Amusement parks & arcades

713200 Gambling industries

713900 Other amusement & recreation

services (including golf courses,

skiing facilities, marinas, fitness

centers, bowling centers, skating

rinks, miniature golf courses)

Museums, Historical Sites, & Similar

Institutions

712100 Museums, historical sites, &

similar institutions

Performing Arts, Spectator Sports, &

Related Industries

711410 Agents & managers for artists,

athletes, entertainers, & other

public figures

711510 Independent artists, writers, &

performers

711100 Performing arts companies

711300 Promoters of performing arts,

sports, & similar events

711210 Spectator sports (including

professional sports clubs &

racetrack operations)

Construction of Buildings

236200

Nonresidential building

construction

236100 Residential building

construction

Heavy and Civil Engineering

Construction

237310 Highway, street, & bridge

construction

237210 Land subdivision

237100 Utility system construction

237990 Other heavy & civil engineering

construction

Specialty Trade Contractors

238310 Drywall & insulation

contractors

238210 Electrical contractors

238350 Finish carpentry contractors

238330 Flooring contractors

238130 Framing carpentry contractors

238150 Glass & glazing contractors

238140 Masonry contractors

238320 Painting & wall covering

contractors

238220 Plumbing, heating & airconditioning contractors

238110 Poured concrete foundation &

structure contractors

238160 Roofing contractors

238170

238910

238120

238340

238290

238390

238190

238990

estate agent). Now find the six-digit code assigned to

this activity (for example, 531210, the code for offices

of real estate agents and brokers) and enter it on

Schedule C, line B.

Note. If your principal source of income is from

farming activities, you should file Schedule F.

Siding contractors

Site preparation contractors

Structural steel & precast

concrete construction

contractors

Tile & terrazzo contractors

Other building equipment

contractors

Other building finishing

contractors

Other foundation, structure, &

building exterior contractors

All other specialty trade

contractors

Educational Services

611000

Educational services (including

schools, colleges, &

universities)

Finance & Insurance

Credit Intermediation & Related

Activities

522100 Depository credit intermediation

(including commercial banking,

savings institutions, & credit

unions)

522200 Nondepository credit

intermediation (including sales

financing & consumer lending)

522300 Activities related to credit

intermediation (including loan

brokers)

Insurance Agents, Brokers, & Related

Activities

524210 Insurance agencies &

brokerages

524290 Other insurance related

activities

Securities, Commodity Contracts, &

Other Financial Investments & Related

Activities

523160 Commodity contracts

intermediation

523150 Investment banking & securities

intermediation

523210 Securities & commodity

exchanges

523900 Other financial investment

activities (including investment

advice)

Health Care & Social Assistance

Ambulatory Health Care Services

621610 Home health care services

621510 Medical & diagnostic

laboratories

621310 Offices of chiropractors

621210 Offices of dentists

621330 Offices of mental health

practitioners (except physicians)

621320 Offices of optometrists

621340 Offices of physical,

occupational & speech

therapists, & audiologists

621111 Offices of physicians (except

mental health specialists)

621112 Offices of physicians, mental

health specialists

621391 Offices of podiatrists

621399 Offices of all other

miscellaneous health

practitioners

621400

621900

Outpatient care centers

Other ambulatory health care

services (including ambulance

services, blood, & organ banks)

Hospitals

622000 Hospitals

Nursing & Residential Care Facilities

623000 Nursing & residential care

facilities

Social Assistance

624410 Childcare services

624200 Community food & housing, &

emergency & other relief

services

624100 Individual & family services

624310 Vocational rehabilitation

services

Information

Publishing Industries

513000 Publishing industries

Broadcasting & Content Providers &

Telecommunications

516000 Broadcasting & content

providers

517000 Telecommunications (including

Wired, Wireless, Satellite, Cable

& Other Program Distribution,

Resellers, Agents, Other

Telecommunications, & Internet

service providers)

Data Processing, Web Search Portals, &

Other Information Services

518210 Computing infrastructure

providers, data processing, web

hosting, & related services

519200 Web search portals, libraries,

archives, & other info. services

Motion Picture & Sound Recording

512100 Motion picture & video

industries (except video rental)

512200 Sound recording industries

Manufacturing

315000

312000

Apparel mfg.

Beverage & tobacco product

mfg.

334000 Computer & electronic product

mfg.

335000 Electrical equipment, appliance,

& component mfg.

332000 Fabricated metal product mfg.

337000 Furniture & related product mfg.

333000 Machinery mfg.

339110 Medical equipment & supplies

mfg.

322000 Paper mfg.

324100 Petroleum & coal products mfg.

326000 Plastics & rubber products mfg.

331000 Primary metal mfg.

323100 Printing & related support

activities

313000 Textile mills

314000 Textile product mills

336000 Transportation equipment mfg.

321000 Wood product mfg.

339900 Other miscellaneous mfg.

Chemical Manufacturing

325100 Basic chemical mfg.

North American Industry Classification System (NAICS). (Continued)

325500

325300

Paint, coating, & adhesive mfg.

Pesticide, fertilizer, & other

agricultural chemical mfg.

325410 Pharmaceutical & medicine

mfg.

325200 Resin, synthetic rubber, &

artificial & synthetic fibers &

filaments mfg.

325600 Soap, cleaning compound, &

toilet preparation mfg.

325900 Other chemical product &

preparation mfg.

Food Manufacturing

311110 Animal food mfg.

311800 Bakeries, tortilla, & dry pasta

mfg.

311500 Dairy product mfg.

311400 Fruit & vegetable preserving &

speciality food mfg.

311200 Grain & oilseed milling

311610 Animal slaughtering &

processing

311710 Seafood product preparation &

packaging

311300 Sugar & confectionery product

mfg.

311900 Other food mfg. (including

coffee, tea, flavorings, &

seasonings)

Leather & Allied Product

Manufacturing

316210 Footwear mfg. (including

leather, rubber, & plastics)

316110 Leather & hide tanning &

finishing

316990 Other leather & allied product

mfg.

Nonmetallic Mineral Product

Manufacturing

327300 Cement & concrete product

mfg.

327100 Clay product & refractory mfg.

327210 Glass & glass product mfg.

327400 Lime & gypsum product mfg.

327900 Other nonmetallic mineral

product mfg.

Mining

212110

211120

212200

211130

212300

213110

Coal mining

Crude petroleum extraction

Metal ore mining

Natural gas extraction

Nonmetallic mineral mining &

quarrying

Support activities for mining

Other Services

Personal & Laundry Services

812111 Barber shops

812112 Beauty salons

812220 Cemeteries & crematories

812310 Coin-operated laundries &

drycleaners

812320 Drycleaning & laundry services

(except coin-operated)

(including laundry &

drycleaning drop-off & pickup

sites)

812210 Funeral homes & funeral

services

812330 Linen & uniform supply

812113 Nail salons

812930 Parking lots & garages

812910 Pet care (except veterinary)

services

812920 Photofinishing

812190 Other personal care services

(including diet & weight

reducing centers)

812990 All other personal services

Repair & Maintenance

811120 Automotive body, paint, interior,

& glass repair

811110 Automotive mechanical &

electrical repair & maintenance

811190

811310

811210

811430

811410

811420

811490

Other automotive repair &

maintenance (including oil

change & lubrication shops &

car washes)

Commercial & industrial

machinery & equipment (except

automotive & electronic) repair

& maintenance

Electronic & precision

equipment repair & maintenance

Footwear & leather goods repair

Home & garden equipment &

appliance repair & maintenance

Reupholstery & furniture repair

Other personal & household

goods repair & maintenance

Professional, Scientific, &

Technical Services

541100

541211

Legal services

Offices of certified public

accountants

541214 Payroll services

541213 Tax preparation services

541219 Other accounting services

Architectural, Engineering, & Related

Services

541310 Architectural services

541350 Building inspection services

541340 Drafting services

541330 Engineering services

541360 Geophysical surveying &

mapping services

541320 Landscape architecture services

541370 Surveying & mapping (except

geophysical) services

541380 Testing laboratories & services

Computer Systems Design & Related

Services

541510 Computer systems design &

related services

Specialized Design Services

541400 Specialized design services

(including interior, industrial,

graphic, & fashion design)

Other Professional, Scientific, &

Technical Services

541800 Advertising, public relations, &

related services

541600 Management, scientific, &

technical consulting services

541910 Market research & public

opinion polling

541920 Photographic services

541700 Scientific research &

development services

541930 Translation & interpretation

services

541940 Veterinary services

541990 All other professional, scientific,

& technical services

Real Estate & Rental & Leasing

Real Estate

531100 Lessors of real estate (including

miniwarehouses & self-storage

units)

531210 Offices of real estate agents &

brokers

531320 Offices of real estate appraisers

531310 Real estate property managers

531390 Other activities related to real

estate

Rental & Leasing Services

532100 Automotive equipment rental &

leasing

532400 Commercial & industrial

machinery & equipment rental

& leasing

532210 Consumer electronics &

appliances rental

532281 Formal wear & costume rental

532310 General rental centers

532283 Home health equipment rental

532284 Recreational goods rental

532282

532289

Video tape & disc rental

Other consumer goods rental

813000

Religious, grantmaking, civic,

professional, & similar

organizations

Religious, Grantmaking, Civic,

Professional, & Similar

Organizations

Retail Trade

Building Material & Garden

Equipment & Supplies Dealers

444140 Hardware retailers

444110 Home centers

444200 Lawn & garden equipment &

supplies retailers

444120 Paint & wallpaper retailers

444180 Other building materials dealers

Clothing & Accessories Retailers

458110 Clothing & clothing accessories

retailers

458310 Jewelry retailers

458320 Luggage & leather goods

retailers

458210 Shoe retailers

Electronic & Appliance Retailers

449210 Electronics & appliance retailers

(including computers)

Food & Beverage Retailers

445320 Beer, wine, & liquor retailers

445250 Fish & seafood retailers

445230 Fruit & vegetable retailers

445100 Grocery & convenience retailers

445240 Meat retailers

445290 Other specialty food retailers

445132 Vending machine operators

Furniture & Home Furnishings

Retailers

449110 Furniture retailers

449120 Home furnishings retailers

Gasoline Stations & Fuel dealers

457100 Gasoline stations (including

convenience stores with gas)

457210 Fuel dealers (including heating

oil & liquefied petroleum)

General Merchandise Retailers

455000 General merchandise retailers

Health & Personal Care Retailers

456120 Cosmetics, beauty supplies, &

perfume retailers

456130 Optical goods retailers

456110 Pharmacies & drug retailers

456190 Other health & personal care

retailers

Motor Vehicle & Parts Dealers

441300 Automotive parts, accessories,

& tire retailers

441222 Boat dealers

441227 Motorcycle, ATV, & all other

motor vehicle dealers

441110 New car dealers

441210 Recreational vehicle dealers

(including motor home & travel

trailer dealers)

441120 Used car dealers

Sporting Goods, Hobby, Book, Musical

Instrument & Miscellaneous Retailers

459210 Book retailers & news dealers

(including newsstands)

459120 Hobby, toy, & game retailers

459140 Musical instrument & supplies

retailers

459130 Sewing, needlework, & piece

goods retailers

459110 Sporting goods retailers

459920 Art dealers

459310 Florists

459420 Gift, novelty, & souvenir

retailers

459930 Manufactured (mobile) home

dealers

459410

Office supplies & stationery

retailers

459910 Pet & pet supplies retailers

459510 Used merchandise retailers

459990 All other miscellaneous retailers

(including tobacco, candle, &

trophy retailers)

Nonstore Retailers

xx

Nonstore retailers sell all types

of merchandise using such

methods as Internet, mail-order

catalogs, interactive television,

or direct sales. These types of

Retailers should select the PBA

associated with their primary

line of products sold.

xx

For example, establishments

primarily selling prescription

and non-prescription drugs,

select PBA code 456110

Pharmacies & Drug Retailers.

Transportation & Warehousing

481000

485510

484110

484120

Air transportation

Charter bus industry

General freight trucking, local

General freight trucking, long

distance

485210 Interurban & rural bus

transportation

486000 Pipeline transportation

482110 Rail transportation

487000 Scenic & sightseeing

transportation

485410 School & employee bus

transportation

484200 Specialized freight trucking

(including household moving

vans)

485300 Taxi, limousine, & ridesharing

service

485110 Urban transit systems

483000 Water transportation

485990 Other transit & ground

passenger transportation

488000 Support activities for

transportation (including motor

vehicle towing)

Couriers & Messengers

492000 Couriers & messengers

Warehousing & Storage Facilities

493100 Warehousing & storage (except

leases of miniwarehouses &

self-storage units)

Utilities

221000

Utilities

Wholesale Trade

Merchant Wholesalers, Durable Goods

423200 Furniture & home furnishing

423700 Hardware, & plumbing &

heating equipment & supplies

423600 Household appliances &

electrical & electronic goods

423940 Jewelry, watch, precious stone,

& precious metals

423300 Lumber & other construction

materials

423800 Machinery, equipment, &

supplies

423500 Metal & mineral (except

petroleum)

423100 Motor vehicle & motor vehicle

parts & supplies

423400 Professional & commercial

equipment & supplies

423930 Recyclable materials

423910 Sporting & recreational goods &

supplies

423920 Toy & hobby goods & supplies

423990 Other miscellaneous durable

goods

Merchant Wholesalers, Nondurable

Goods

424300 Apparel, piece goods, & notions

C-19

North American Industry Classification System (NAICS). (Continued)

424800

424920

424600

424210

424500

C-20

Beer, wine, & distilled alcoholic

beverages

Books, periodicals, &

newspapers

Chemical & allied products

Drugs & druggists' sundries

Farm product raw materials

424910

424930

424400

424950

424100

Farm supplies

Flower, nursery stock, & florists'

supplies

Grocery & related products

Paint, varnish, & supplies

Paper & paper products

424700

424940

424990

Petroleum & petroleum products

Tobacco products & electronic

cigarettes

Other miscellaneous nondurable

goods

Wholesale Trade Agents &

Brokers

425120

Wholesale trade agents &

brokers

999000

Unclassified establishments

(unable to classify)