PA Schedule C - Part I Instructions

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Schedule C -- Net Profits(Loss) - Part I
Net Profits(Loss) from a Business or Profession
 

Overview Information
Use PA Schedule C to report income or loss from a business you operate, or a profession you practice, as a sole proprietor.

Your activity qualifies as a business if your primary purpose for engaging in the activity is income or profit, and you conduct your activity with continuity and regularity. Certain rental activity may be business income and not rental income. If you are a sole member of an LLC, complete PA Schedule C.

For additional information regarding the definition of a business or profession, and for Pennsylvania ’s requirements for reporting income and expenses, go to the Department's Web site and link to the PA PIT Guide.

If your business had expenses of $5,000 or less, you may be able to use PA Schedule C-EZ instead of PA Schedule C.

Note:

Pennsylvania determines income and loss under those accounting principles, systems, or practices that are:

  • Acceptable by standards of the accounting profession, and
  • Consistent with the regulations of the Department setting forth such principles and practices.   
Pennsylvania does not generally follow federal tax accounting rules to determine income or loss:

You may use any accounting method for PA purposes, as long as you apply your accounting methods consistently.

An owner may deduct all losses in the taxable year realized. You report all transactions that are directly related to your business or profession on your PA Schedule C.

You should not use the installment method for sales of inventory if you sell such inventory in the regular and ordinary course of a business or profession. You include interest on such sales in gross receipts.

You should maintain separate books and records for PA PIT purposes, and file PA Schedule C. If you do not maintain separate accounts, you should adjust your records to account for differences in Federal and State ruling when filing PA Schedule C.

 

Important Differences between the IRS and Pennsylvania

You may use any accounting method for PA purposes, as long as you apply your accounting methods consistently. PA law does not have materially participating rules for sole proprietors. Nor does PA law have loss limitations. An owner may report all losses in the taxable year realized. You report all transactions that are directly related to your business or profession on your PA Schedule C.

If you own or operate more than one business, you must submit a separate PA Schedule C for each business operation.

The following federal schedules and instructions do not apply for PA Schedule C:

Schedule A. You may not deduct non-business related personal interest, taxes, and casualty losses on any PA PIT return.

Schedule E. You report rental and royalty income on PA Schedule E, unless engaged in the business of making your property or rights available in a public market place with an intention to realize a profit.

Schedule F. You report farming activity on PA Schedule F. Please select another filing method.

Schedule SE. You do not report self-employment taxes to Pennsylvania .

Form 4562. If using bonus depreciation you may not use Form 4562. The maximum deduction that PA income tax law permits using IRC Section 179 is $25,000. If you have income (loss) from more than one business, profession, or farm, you may not deduct more than a total of $25,000 of IRC Section 179 expenses for all activities. You may not deduct in total more than $25,000 for all business activities.

Form 4684. You report gain or loss from all business activity on PA Schedule C. You include a casualty or theft loss (or gain, if insurance proceeds exceed the basis of the property lost or taken) of business property on Line 4 of PA Schedule C. You may refer to the federal schedule as the explanation for gain/loss items. Do not submit the federal schedule.

Form 4797. You report other sales, exchanges, and involuntary conversions of business property on Line 4 of PA Schedule C.

You may refer to the federal schedule as the explanation for gain/loss items. Do not submit the federal schedule.

Form 8271. You do not report or deduct any transactions related to tax shelters for PA PIT purposes.

Form 8594. You report the acquisition or disposition of business assets on Line 4 of PA Schedule C. You may refer to the federal schedule as the explanation for gain/loss items. Do not submit the federal schedule.

Form 8824. You do not report a like-kind exchange on PA Schedule C, unless a normal and recognized transaction in your business or profession in accordance with APB 29. PA law does not have like-kind exchange provisions. You must include the gain or loss from a sale, exchange, or disposition of a business asset on Line 4 of PA Schedule C, if the transaction was a normal business transaction. You must report any gain or loss from the sale of a non-business asset or property or the sale of a business or segment thereof on PA Schedule D.

Form 8829. You include your allowable expenses for the business use of your home on Line 32 of PA Schedule C. You may refer to the federal schedule as the explanation for this expense. Do not submit the federal schedule.

Identification Information  

Owner's Name. Enter the name of the business owner only. If married and you jointly owned the business with your spouse, enter both names. If you and your spouse have separate business activities, you must complete separate PA Schedule(s) C.

Enter the name of the spouse you entered first on your PA tax return.

Social Security Number. Enter the Social Security Number of the business owner. If married and you jointly owned the business, enter the SSN that you entered first on your PA tax return.

A. Main Business Activity. Describe the business or professional activity that provided your principal source of income for Line 1. Use the same description that you use for your Federal Schedule C. Enter the principal business or professional code that you use on your Federal Schedule C.

B. Business Name. Enter the name of the business as you registered with the Internal Revenue Service.

C. Taxpayer Identification Number.

Federal EIN. Enter the FEIN assigned to the business. If you do not have a FEIN for your Federal Schedule C, leave this space blank.
Sales Tax License Number.
Enter the Sales Tax License number if you have one, or leave this space blank.
Federal NAICS Code. Use the same code that is recorded on the Federal Schedule C.

D. Business Address. Enter the complete address of the business.

E. Closing Inventory Valuation. Fill in the appropriate oval. Submit an explanation if necessary.

F. Accounting Method. Fill in the oval for the accounting method you use for this business. Submit an explanation if necessary.

G. Inventory Changes. Check Yes or No for this question. Submit an explanation if necessary.

H. Office in Home. Check “Yes” if you deduct expenses for an office in home. Check “No” if you do not deduct expenses for an office in home.

I. Out of Business. If the business is out of existence as of the end of the tax year, indicate by selecting "yes". Select "no" if you have not ceased doing business.

PA Schedule C-1 (Cost of Goods Sold)

Generally, if you engaged in a trade or business in which the production, purchase, or sale of merchandise was an income-producing factor, you must consider inventories at the beginning and end of your tax year. In determining inventory value, you may use cash, accrual, or other method allowable under accepted accounting principles and practices.
If you change methods of valuing inventory, you must restate the value at the beginning of the year based on the changed method and attach an explanation. There is no provision under PA PIT law similar to IRC Section 481(a) that permits taxpayers to spread the income effect of a change in method over a specified period.

Line 3. Gross profit. This amount is calculated by subtracting Line 2 from Line 1c.

Line 4. Other income. Enter gross proceeds that you may have to report elsewhere on your federal tax return, including, but not limited to:

The sale of business assets when you reinvest the proceeds in business operations.

The gain or loss on replacing business property (including land or buildings that you use in operating your business or profession).

Interest and dividend income from short-term investments to generate working capital.

 
You must submit a statement explaining the amount you enter. See the PA PIT Guide for discussion of allocable interest, dividends, and gains to business or professions. Include other income that you enter on Line 6, Federal Schedule C, but not refunds of federal taxes and credits that you did not deduct for PA purposes.
 
Part I - Income

Use generally accepted accounting principles and practices to maintain your books and records and report your income from your business or professional activity.

 

Line 1a. Gross receipts or sales. Include all amounts you received in operating your business or profession. Important. PA law does not contain provisions for statutory employees. A statutory employee reports his or her PA taxable income on Line 1a, PA-40, and uses PA Schedule UE to deduct his or her allowable employee business expenses.
Installment Sales. You may use the installment method for sales of inventory. You include interest on such sales in gross receipts.

Land and Buildings. For PA purposes, you may not include the sales of land and buildings on PA Schedule C. The Department deems such sales as PA Schedule D transactions as the disposition of a segment of a business.

 

Line 1b. Returns and allowances. This amount is the same for both Pennsylvania and federal purposes. If you report a different amount for Pennsylvania , explain on a statement.

 

Line 2. Cost of goods sold. This amount is the same for both Pennsylvania and federal purposes. If you report a different amount for Pennsylvania , explain on a statement.

 
 
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