U.S. Individual Income Tax Return

Department of the Treasury
Internal Revenue Service

2011 Instructions for Schedule C
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
Profit or Loss
primary purpose for engaging in the activity is for income or profit and you are involved in
activity with continuity and regularity. For example, a sporadic activity or a hobby does
From Business the
not qualify as a business. To report income from a nonbusiness activity, see the instructions
for Form 1040, line 21, or Form 1040NR, line 21.
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 income shown
on Form 1099-K, Merchant Card and Third Party Network Payments, and Form
1099-MISC, Miscellaneous Income. See the instructions for line 1 and the Instructions for
Recipient (back of Copy B of Form 1099-MISC) for the types of income to report on Schedule C.
Small businesses and statutory employees with business expenses of $5,000 or less may
be able to file Schedule C-EZ instead of Schedule C. See Schedule C-EZ for details.
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.

to determine whether you are required to
file any Forms 1099.
Heavy highway vehicle use tax. This tax

What’s New
Future developments. For the latest infor-

mation about this form, including any developments after these instructions were
released, go to www.irs.gov/schedulec.
New merchant card reporting requirements. We added new lines 1a and 1b to

implement reporting of gross receipts received via merchant card (credit and debit
cards) and third party network payments.
However, for 2011, the IRS has deferred
the requirement to report these amounts.
Therefore, enter zero on line 1a and report
all gross receipts on line 1b, including any
income reported to you on Form 1099-K,
Merchant Card and Third Party Network
Payments (but excluding any W-2 income
reportable on line 1c).
Qualified joint ventures reporting rental
real estate income. Beginning in 2011,

qualified joint ventures reporting rental real
estate income that is not subject to self-employment tax must report that income on
Schedule E instead of Schedule C. See
Husband-Wife Qualified Joint Venture and
the Instructions for Schedule E for details.

Standard mileage rate. The business stan-

dard mileage rate for 2011 increased to 51
cents per mile for miles driven before July
1, 2011, and 55.5 cents per mile for miles
driven after June 30, 2011. See the instructions for line 9 for details.
Information reporting requirements. New

lines I and J address your required filing of
Forms 1099 in 2011. See the General Instructions for Certain Information Returns

has been extended through September 30,
2012. See Form 2290 and its instructions
for the extended filing deadline for 2011.
Musical composition expenses. You may

no longer elect to amortize certain expenses
paid or incurred to create or acquire a musical composition or its copyright.

General Instructions
Other Schedules and Forms
You May Have To File
• Schedule A to deduct interest, taxes,

and casualty losses not related to your business.
• Schedule E to report rental real estate
and royalty income or (loss) that is not subject to self-employment tax.
• Schedule F to report profit or (loss)
from farming.
• Schedule J to figure your tax by averaging your farming or fishing income over
the previous 3 years. Doing so may reduce
your tax.
• Schedule SE to pay self-employment
tax on income from any trade or business.
• Form 3800 to claim any of the general
business credits.
• Form 4562 to claim depreciation (including the special allowance) on assets
placed in service in 2011, to claim amortization that began in 2011, to make an election under section 179 to expense certain
property, or to report information on listed
property.
• Form 4684 to report a casualty or theft
gain or loss involving property used in your

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Dec 06, 2011

Cat. No. 24329W

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 figure your allowable
loss if you have a business loss and you
have amounts invested in the business for
which you are not at risk.
• Form 8582 to figure your deductible
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 expenses for business use of your home.
• Form 8903 to take a deduction for income from domestic production activities.
Single-member limited liability company
(LLC). Generally, a single-member do-

mestic 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 C-EZ (or Schedule E or
F, if applicable). However, you can elect to
treat a domestic LLC as a corporation. See
Form 8832 for details on the election and
the tax treatment of a foreign LLC.
Single-member limited liability companies
(LLCs) with employees. Single-member

LLCs that are disregarded as entities separate from their owner for federal income
tax purposes are now required to file employment tax returns using the LLC’s name
and employer identification number (EIN)
rather than the LLC owner’s name and
EIN. Single-member LLCs not previously
needing an EIN may now need to obtain an
EIN for the payment and reporting of those
taxes. For more information, see the Instructions for Form SS-4.

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 visit www.irs.gov/
trucker for the most recent developments.
Information returns. 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. See the instructions for line I
and the 2011 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.

Husband-Wife
Qualified Joint Venture
If you and your spouse each materially participate (see Material participation, later, in
the instructions for line G) as the only
members of a jointly owned and operated
business and you file a joint return for the
tax year, you can make an election to be
taxed as a qualified joint venture instead of
a partnership. This election, in most cases,
will not increase the total tax owed on the
joint return, but it does give each of you
credit for social security earnings on which
retirement benefits are based and for Medicare coverage. By making the election, you
will not be required to file Form 1065 for
any year the election is in effect and will
instead report the income and deductions
directly on your joint return. If you and
your spouse filed a Form 1065 for the year
prior to the election, the partnership terminates at the end of the tax year immediately
preceding the year the election takes effect.
Note. Mere joint ownership of property

that is not a trade or business does not qualify for the election.
Making the election. To make this election, you must divide all items of income,
gain, loss, deduction, and credit attributable
to the business between you and your
spouse in accordance with your respective
interests in the venture. Each of you must
file a separate Schedule C, C-EZ, or F. On
each line of your separate Schedule C,
C-EZ, or F, you must enter your share of
the applicable income, deduction, or loss.
Each of you must also file a separate
Schedule SE to pay self-employment tax,
as applicable.
Once made, the election can be revoked
only with the permission of the IRS. However, the election technically remains in effect only for as long as the spouses filing as
a qualified joint venture continue to meet
the requirements for filing the election. If
the spouses fail to meet the qualified joint
venture requirements for a year, a new election will be necessary for any future year in
which the spouses meet the requirements to
be treated as a qualified joint venture.
The election generally does not require
that you and your spouse obtain an em-

ployer identification number (EIN) since
you and your spouse will file as sole proprietors. However, 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.
For more information on qualified joint
ventures, go to IRS.gov. Enter “qualified
joint venture” in the search box and select
“Election for Husband and Wife Unincorporated Businesses.”
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
generally is not included in net earnings
from self-employment subject to self-employment tax and generally is 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.

Exception —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. possession,
the income and deductions are reported 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 you and your spouse
are partners in a partnership, see Pub. 541.
• If you and your spouse elected to treat
the business as a qualifying joint venture,
see Husband-Wife Qualified Joint Venture
on this page.
The only states with community property laws are Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin. A change in
your reporting position will be treated as a
conversion of the entity.

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.

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• 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 after November 1, 2006, 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 or C-EZ 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, line 43, by the
amount of the deduction. Next to line 43,
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 employer identification number (EIN) issued to the estate
or trust on line D.

Line A
Describe the business or professional activity that provided your principal source of
income reported on line 1b-d. If you owned
more than one business, you must 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 D
Enter on line D the employer identification
number (EIN) that was issued to you on
Form SS-4. Do not enter your SSN. 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, you may have an EIN that was issued to the LLC (and in the LLC’s legal
name) if you are required to file employment tax returns and certain excise tax returns. However, you should enter on line
D only the EIN issued to you and in your
name as a sole proprietor. If you do not
have such an EIN, leave line D blank. Do
not enter on line D the EIN issued to the
LLC.

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 Form 1040,
page 1, you do not have to complete this
line.

Line F
Generally, you can use the cash method,
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 qualifying taxpayer or a qualifying small business taxpayer (see the Part III instructions), you
must use the accrual method for sales and
purchases of inventory items. Special rules
apply to long-term contracts (see Code section 460 for details).
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 substantially beyond the close of the year, it
may not be deductible or may be deductible
only in part for the year of the payment. See
chapter 1 of Pub. 535.
If you use the accrual method, report income when you earn it and deduct expenses
when you incur them even if you do not pay
them during the tax year. Accrual-basis
taxpayers are put on a cash basis for deducting business expenses owed to a related cash-basis taxpayer. Other rules
determine the timing of deductions based
on economic performance. See Pub. 538.
To change your accounting method, you
generally must file Form 3115. You also
may 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.
Example. You change to the cash
method of accounting and choose to account for inventoriable items in the same
manner as materials and supplies that are
not incidental. You accrued sales in 2010
for which you received payment in 2011.
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(a) adjustment is taken into account entirely in the
year of the 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.
For details on figuring section 481(a)
adjustments, see the Instructions for Form
3115, and Rev. Proc. 2006-12, 2006-3
I.R.B. 310, available at
www.irs.gov/irb/2006-03_IRB/ar14.html.
Also see Rev. Proc. 2006-37, 2006-38
I.R.B. 499, available at
www.irs.gov/irb/2006-38_IRB/ar10.html.

Line G
If your business activity was not a rental
activity and you met any of the material
participation tests, explained next, or the
exception for oil and gas applies (explained
later), check the “Yes” box. Otherwise,
check the “No” box. If you check the “No”
box, this business is a passive activity. If
you have a loss from this business, see
Limit on losses, later. If you have a profit
from this business activity but have current
year losses from other passive activities or
you have prior year unallowed passive activity losses, see the Instructions for Form
8582.
Material participation. For purposes of
the seven material participation tests listed
below, 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 done 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 you own 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 Husband-Wife
Qualified Joint Venture, earlier).
For purposes of the passive activity
rules, you materially participated in the op-

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eration of this trade or business activity
during 2011 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 “significant 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 fields of health,
law, engineering, architecture, accounting,
actuarial science, performing arts, 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 property. Generally, a rental ac-

tivity (such as long-term equipment leasing
or rental real estate) is a passive activity
even if you materially participated in the
activity. However, if you materially participated in a rental real estate activity as a real
estate professional, it is not a passive activity. Also, 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 above
apply. See Activities That Are Not Passive
Activities in the Instructions for Form 8582
for the definition of a real estate professional.
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 loss may be limited
if you checked the “No” box on line G. In
this case, you may have a loss from a passive activity, and you may have to use
Form 8582 to figure your allowable loss, if
any, to enter on Schedule C, line 31.
Generally, you can deduct losses from
passive activities only to the extent of income from passive activities. For details,
see Pub. 925.

Line H
If you started or acquired this business in
2011, 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 2010 Schedule C or
C-EZ for this business.

Line I
If you made any payment in 2011 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 non-employee
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,
deposit-commission, or other similar basis
for resale.

On page 15 of the General Instructions for Certain Information Returns, you can find a
chart showing which Forms
1099 must be filed, the amounts to report,
and the due dates for the required Forms
1099.

TIP

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 2011, see Chapter
11 Bankruptcy Cases under Income in the
instructions for Form 1040 and the Instructions for Schedule SE (Form 1040).

Line 1
Enter gross receipts from your trade or
business. If you received merchant card
and third party network payments in 2011,

you should receive a Form 1099-K for
those payments. These payments should
have been reported to you in box 1 of Form
1099-K, Merchant Card and Third Party
Network Payments. Merchant cards include, but are not limited to, Visa and MasterCard. Third party networks include, but
are not limited to, PayPal and Google
Checkout. For 2011, you are not required to
report income received via merchant card
or third party network payers, so enter zero
on line 1a and report all income, regardless
of how it was received, on line 1b.
Line 1b. Enter on line 1b all gross receipts

from your trade or business. Also include
amounts you received in your trade or business that were properly shown on Forms
1099-MISC. If the total amounts that were
reported in box 7 of Forms 1099-MISC are
more than the total you are reporting on this
line, attach a statement explaining the difference.
Line 1c. If you received a Form W-2 and

the “Statutory employee” box in box 13 of
that form was checked, report your income
and expenses related to that income on
Schedule C or C-EZ. Enter your statutory
employee income from box 1 of Form W-2
on this 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 use
Schedule C-EZ or combine these amounts
on a single Schedule C.

Qualified joint ventures should
report rental real estate income
not subject to self-employment
tax on Schedule E. See
Husband-Wife Qualified Joint Venture,
earlier, and the Instructions for Schedule E.
Installment sales. Generally, the install-

ment 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 Form 1040, line 61. Also, enter
“453(l)(3)” and the amount of the interest
on the dotted line to the left of line 61.
If you use the installment method, attach a schedule to your return. Show separately for 2011 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.

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Line 1d. Since line 1a is zero, enter on line

1d the amount from line 1b or 1c.

Line 6
Report on line 6 amounts from 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 2011, credit for
biodiesel and renewable diesel fuels
claimed on line 8 of Form 8864, credit for
alcohol and cellulosic biofuel fuels claimed
on line 7 of Form 6478, credit for federal
tax paid on fuels claimed on your 2010
Form 1040, prizes and awards related to
your trade or business, and other kinds of
miscellaneous business income. Include
amounts you received in your trade or business as shown on Form 1099-PATR.
If the business use percentage of any
listed property (defined in the instructions
for line 13) dropped to 50% or less in 2011,
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 property. If you pro-

duced real or tangible personal property or
acquired property for resale, certain expenses attributable to the property generally must be included in inventory costs or
capitalized. In addition to direct costs, producers of inventory property generally
must also include part of certain indirect
costs in their inventory. Purchasers of personal property acquired for resale must include part of certain indirect costs in
inventory only if the average annual gross
receipts for the 3 prior tax years exceed $10
million. Also, you must capitalize part of
the indirect costs that benefit real or tangible personal property constructed for use in
a trade or business, or noninventory property produced for sale to customers. Reduce the amounts on lines 8 through 26 and
Part V by amounts capitalized. See Pub.
538 for a discussion of uniform capitalization rules.
Exception for certain producers. Producers who account for inventoriable items
in the same manner as materials and supplies that are not incidental can currently
deduct expenditures for direct labor and all
indirect costs that would otherwise be included in inventory costs. See Part III. Cost
of Goods Sold 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, video tapes, 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 cannot 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 2011 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 (except the period, if any, before
1998).
If you take the standard mileage rate:

• Multiply the number of business miles
driven by 51 cents for miles driven before
July 1, 2011, and 55.5 cents per mile for
miles driven after June 30, 2011, and
• 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, tires, 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.
• Schedule C, Part IV, or Schedule
C-EZ, Part III, 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 your
own schedule with the information requested in Schedule C, Part IV, or Schedule
C-EZ, Part III, for each additional vehicle.
• 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 the instructions for line 13).

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.
You must file Form 1099-MISC, Miscellaneous Income, to report contract labor
payments of $600 or more during the year.
See the Instructions for Form 1099-MISC
for details.

lar business establishment only if that portion meets the requirements under section
280A(c)(1) for deducting expenses for the
business use of your home.
See the instructions for line 6 if the business use percentage of any listed property
dropped to 50% or less in 2011.

Line 12

Line 14

Enter your deduction for depletion on this
line. If you have timber depletion, attach
Form T. See chapter 9 of Pub. 535 for details.

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 Form 1040, line 29, or Form 1040NR,
line 29, 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 Form 1040, line 29, or Form
1040NR, line 29, for details.
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 13
Depreciation and section 179 expense deduction. Depreciation is the annual deduc-

tion 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 2011 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 2011;
• Depreciation on listed property (defined below), 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 2011, see Pub. 946.
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.;
• Any property used for entertainment
or recreational purposes (such as photographic, phonographic, communication,
and video recording equipment); and
• Computers or peripheral equipment.
Exceptions. Listed property does not include photographic, phonographic, communication, or video equipment used
exclusively in your trade or business or at
your regular business establishment. It also
does not include any computer or peripheral equipment used exclusively at a regular business establishment and owned or
leased by the person operating the establishment. For purposes of these exceptions,
a portion of your home is treated as a regu-

C-5

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 chapter 6 of Pub. 535.

Lines 16a and 16b
Interest allocation rules. The tax treatment

of interest expense differs depending 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 or C-EZ.
Generally, you allocate interest expense
by tracing how the proceeds of the loan
were used. See chapter 4 of Pub. 535 for
details.
If you paid interest on a debt secured by
your main home and any of the proceeds
from that debt were used in connection

with your trade or business, see chapter 4 of
Pub. 535 to figure the amount that is deductible on Schedule C or C-EZ.
How to report. If you have a mortgage on
real property used in your business (other
than your main home), enter on line 16a the
interest you paid for 2011 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, see chapter 4 of
Pub. 535 to find out if you can deduct the
additional interest. If you can, 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.
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 2011 that also
applies to future years, deduct only the part
that applies to 2011.

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 relating to your
business.
For more information, see Pub. 334 or
535.

Line 18
Include on this line your expenses for
office supplies and postage.

Line 19
Enter your deduction for contributions to a
pension, profit-sharing, or annuity plan, or
plan for the benefit of your employees. If
the plan included you as a self-employed
person, enter contributions made as an employer on your behalf on Form 1040, line
28, or Form 1040NR, line 28, not on
Schedule C.
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 if you have a
small plan (fewer than 100 participants in
most cases) that meets certain requirements.
Form 5500. File this form 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 an amount called 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
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

C-6

local governments. But some licenses, such
as liquor licenses, may have to be amortized. See chapter 8 of Pub. 535 for details.
• 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 state unemployment
insurance fund or disability benefit fund if
they are considered taxes under state law.
Do not deduct the following.
• Federal income taxes, including your
self-employment tax. However, you can
deduct a portion of your self-employment
tax on Form 1040, line 27, (or Form
1040NR, line 27, 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 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.

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 cannot 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.
Do not include expenses for meals and
entertainment on this line. Instead, see the
instructions for line 24b.
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
method on any day that you use the standard meal allowance (as explained in the
instructions for line 24b).
You cannot 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 total deductible business meal
and entertainment expenses. This includes
expenses for meals while traveling away
from home for business and for meals that
are business-related entertainment.
Deductible expenses. Business meal ex-

penses are deductible only if they are (a)
directly related to or associated with the
active conduct of your trade or business, (b)
not lavish or extravagant, and (c) incurred
while you or your employee is present at
the meal.
You cannot deduct any expense paid or
incurred for a facility (such as a yacht or
hunting lodge) used for any activity usually
considered entertainment, amusement, or
recreation.
Also, you cannot deduct membership
dues for any club organized for business,
pleasure, recreation, or other social purpose. This includes country clubs, golf and
athletic clubs, airline and hotel clubs, and
clubs operated to provide meals under conditions favorable to business discussion.
But it does not include civic or public service organizations, professional organizations (such as bar and medical
associations), business leagues, trade associations, chambers of commerce, boards
of trade, and real estate boards, unless a
principal purpose of the organization is to
entertain, or provide entertainment facilities for, members or their guests.
There are exceptions to these rules as
well as other rules that apply to sky-box
rentals and tickets to entertainment events.
See chapters 1 and 2 of Pub. 463.

See chapter 1 of Pub. 463 for details on
how to figure your deduction using the
standard meal allowance, including special
rules for partial days of travel.
Amount of deduction. In most cases, you

can deduct only 50% of your business meal
and entertainment expenses, including
meals incurred while away from home on
business. However, for individuals subject
to the Department of Transportation (DOT)
hours of service limits, that percentage 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,
incidentals, and entertainment furnished or
reimbursed to an employee if you properly
treat the expense as wages subject to withholding. You can also fully deduct meals,
incidentals, and entertainment provided to
a nonemployee to the extent the expenses
are includible in the gross income of that
person and reported on Form 1099-MISC.
See Pub. 535 for details and other exceptions.
Daycare providers. If you qualify as a

family daycare provider, you can use the
standard meal and snack rates, instead of
actual costs, to compute the deductible cost
of meals and snacks provided to eligible
children. 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.

Standard meal allowance. Instead of de-

ducting 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 M&IE rate. You can find these rates on
the Internet at www.gsa.gov. Click on “Per
Diem Rates” for links to locations inside
and outside the continental United States.

Line 26
Enter the total salaries and wages for the
tax year. Do not include salaries and wages
deducted elsewhere on your return or
amounts paid to yourself. Reduce your deduction by the amounts claimed on:
• Form 5884, Work Opportunity Credit,
line 2;
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit,
line 2;
• Form 8845, Indian Employment
Credit, line 4; and

C-7

• Form 8932, Credit for Employer Differential Wage Payments, line 2.
If you provided taxable fringe
benefits to your employees,
such as personal use of a car, do
not deduct as wages the amount
applicable to depreciation and other expenses claimed elsewhere.
In most cases, you are required to file
Form W-2, Wage and Tax Statement, for
each employee. See the Instructions for
Forms W-2 and W-3.

Line 30
Business use of your home. You may be

able to deduct certain expenses for business
use of your home, subject to limitations.
You must attach Form 8829 if you claim
this deduction. For details, see the Instructions for Form 8829 and Pub. 587.

Line 31
If you have a loss, the amount of loss you
can deduct this year may be limited. Go to
line 32 before entering your loss on line 31.
If you answered “No” on line G or are a
qualified joint venture reporting only rental
real estate, also see the Instructions for
Form 8582. Enter the net profit or deductible loss here. Combine this amount with
any profit or loss from other businesses and
enter the total on both Form 1040, line 12,
and Schedule SE, line 2, or on Form
1040NR, line 13. Nonresident aliens using
Form 1040NR should also enter the total 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 Schedule SE
instructions for information on international social security agreements. Estates
and trusts should enter the total on Form
1041, line 3.
Excess farm loss rules. If your Schedule C

activity includes processing a farm commodity as part of your farming business,
your deductible loss from that activity may
be limited if you received certain subsidies.
See the Instructions for Schedule F for a list
of those subsidies. Use one of the worksheets in the Schedule F instructions to determine if you have an excess farm loss.
See the Instructions for Schedule F for
more details on how to complete the worksheets.
Statutory employees. Include your net

profit or deductible loss from line 31 with
other Schedule C amounts on Form 1040,
line 12, or on Form 1040NR, line 13. However, do not report this amount on Schedule
SE, line 2. If you were a statutory employee
and are required to file Schedule SE because of other self-employment income,
see the Instructions for Schedule SE.
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 figure your deductible loss to enter on line 31. See the
Instructions for Form 8582.

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 of other self-employment income.
See the Instructions for Schedule SE.
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. If you have a net
profit on line 31, this amount is earned income and may qualify you for the earned
income credit (EIC).

To figure your EIC, use the instructions for Form 1040, lines
64a and 64b. Complete all applicable steps plus Worksheet
B. If you are required to file Schedule SE,
remember to enter the deductible portion of
your self-employment tax in Part 1, line 1d,
of Worksheet B.

checked box 32b and you do not attach
Form 6198, the processing of your tax return may be delayed.
Any loss from this business not allowed
for 2011 only because of the at-risk rules is
treated as a deduction allocable to the business in 2012.
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 certain taxpayers. If you are

Line 32
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, you
must complete Form 6198 to figure your
allowable 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). However, there is an exception for certain nonrecourse financing borrowed by you in
connection with holding real property.
• 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 deductible loss. If all
amounts are at risk in this business, check
box 32a. If you answered “Yes” on line G,
enter your loss on line 31. But if you answered “No” on line G, you may need to
complete Form 8582 to figure your allowable loss to enter on line 31. See the Instructions for Form 8582 for details.
If you checked box 32b, first complete
Form 6198 to determine the amount of your
deductible loss. If you answered “Yes” on
line G, enter that amount on line 31. But if
you answered “No” on line G, your loss
may be further limited. See the Instructions
for Form 8582. If your at-risk amount is
zero or less, enter -0- on line 31. Be sure to
attach Form 6198 to your return. If you

a qualifying taxpayer or a qualifying small
business taxpayer (discussed next), you can
account for inventoriable items in the same
manner as materials and supplies that are
not incidental. Under this accounting
method, inventory costs for raw materials
purchased for use in producing finished
goods and merchandise purchased for resale are deductible in the year the finished
goods or merchandise are sold (but not
before the year you paid for the raw materials or merchandise, if you are also using the
cash method). Enter amounts paid for all
raw materials and merchandise during
2011 on line 36. The amount you can deduct for 2011 is figured on line 42.

Certain direct and indirect expenses may have to be capitalized or included in inventory.
See the Instructions for Part II.
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. However,
you are required to use cost if you are using
the cash method of accounting.

Line 35
If you are changing your method of accounting beginning with 2011, refigure last
year’s closing inventory using your 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.

Line 41
If you account for inventoriable items in
the same manner as materials and supplies
that are not incidental, enter on line 41 the
portion of your raw materials and merchandise purchased for resale that is included on
line 40 and was not sold during the year.

Qualifying taxpayer. This is a taxpayer
(a) whose average annual gross receipts for
the 3 prior tax years are $1 million or less,
and (b) whose business is not a tax shelter
(as defined in section 448(d)(3)).

Part IV. Information on
Your Vehicle

Qualifying small business taxpayer.
This is a taxpayer (a) whose average annual
gross receipts for the 3 prior tax years are
$10 million or less, (b) whose business is
not a tax shelter (as defined in section
448(d)(3)), and (c) whose principal business activity is not an ineligible activity as
explained in Rev. Proc. 2002-28. You can
find Rev. Proc. 2002-28 on page 815 of
Internal Revenue Bulletin 2002-18 at
www.irs.gov/pub/irs-irbs/irb02-18.pdf.

Line 44b

Changing accounting methods. File
Form 3115 if you are a qualifying taxpayer
or qualifying small business taxpayer and
want to change to the cash method or to
account for inventoriable items as non-incidental materials and supplies.
Additional information. For additional
guidance on this method of accounting for
inventoriable items, see the following.
• Pub. 538 discusses both exceptions.
• If you are a qualifying taxpayer, see
Rev. Proc. 2001-10, on page 272 of Internal
Revenue Bulletin 2001-2 at
www.irs.gov/pub/irs-irbs/irb01-02.pdf.
• If you are a qualifying small business
taxpayer, see Rev. Proc. 2002-28, on page
815 of Internal Revenue Bulletin 2002-18
at www.irs.gov/pub/irs-irbs/irb02-18.pdf.

C-8

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.
For information on certain travel that is
considered a business expense rather than
commuting, see the Instructions for
Form 2106.

Part V. Other
Expenses
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. 535.
Amortization. Include amortization in this

part. For amortization that begins in 2011,
you must complete and attach Form 4562.
You can elect to amortize such costs as:
• The cost of pollution-control facilities;
• Amounts paid for research and experimentation;
• Qualified revitalization expenditures;
• 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 as a deduction last year only because of the at-risk
rules is treated as a deduction allocable to
this business in 2011. For the loss to be
deductible, the amount that is “at risk” must
be increased.
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. 535.
Business start-up costs. If your business

began in 2011, you can elect to deduct up to
$5,000 of certain business start-up costs.
The $5,000 limit is reduced (but not below
zero) by the amount by which your total
start-up costs exceed $50,000. Your remaining start-up costs can be amortized
over a 180-month period, beginning with
the month the business began.
For details, see chapters 7 and 8 of Pub.
535. For amortization that begins in 2011,
you must complete and attach Form 4562.
Costs of making commercial buildings
energy efficient. You may be able to de-

duct part or all of the cost of modifying
existing commercial buildings to make
them energy efficient. For details, see section 179D, Notice 2006-52, and Notice
2008-40. Notice 2006-52, 2006-26 I.R.B.
1175, is available at
www.irs.gov/irb/2006-26_IRB/ar11.html.
Notice 2008-40, 2008-14 I.R.B. 725, is
available at
www.irs.gov/irb/2008-14_IRB/ar12.html.

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.
Qualified disaster expenses. You can elect
to deduct certain expenses you paid or incurred before January 1, 2012, as a result of
a federally declared disaster. For more information, see chapter 7 of Pub. 535.
Film and television production expenses.

You can elect to deduct costs of certain
qualified film and television productions.
For details, see Pub. 535.
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 2011.
You can elect to amortize the remaining
costs over 84 months. For amortization that
begins in 2011, you must complete and attach Form 4562.
The amortization election does not apply to trusts, and the expense election does
not apply to estates and trusts. For details
on reforestation expenses, see chapters 7
and 8 of Pub. 535.

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 2011 to

Principal Business or Professional Activity Codes
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
six-digit codes are based on the North American
Industry Classification System (NAICS).

Accommodation, Food
Services, & Drinking Places
Accommodation
721310 Rooming & boarding houses
721210 RV (recreational vehicle)
parks & recreational camps
721100 Traveler accommodation
(including hotels, motels, &
bed & breakfast inns)
Food Services & Drinking Places
722410 Drinking places (alcoholic
beverages)
722110 Full-service restaurants
722210 Limited-service eating places
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

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
estate agent). Now find the six-digit code assigned to
this activity (for example, 531210, the code for offices

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 Animal production (including
breeding of cats and dogs)
114110 Fishing

of real estate agents and brokers) and enter it on
Schedule C or C-EZ, line B.
Note. If your principal source of income is from
farming activities, you should file Schedule F.

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

C-9

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

Principal Business or Professional Activity Codes (continued)
238110 Poured concrete foundation &
structure contractors
238160 Roofing contractors
238170 Siding contractors
238910 Site preparation contractors
238120 Structural steel & precast
concrete construction
contractors
238340 Tile & terrazzo contractors
238290 Other building equipment
contractors
238390 Other building finishing
contractors
238190 Other foundation, structure, &
building exterior contractors
238990 All other specialty trade
contractors

621900 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 Child day care services
624200 Community food & housing,
& emergency & other relief
services
624100 Individual & family services
624310 Vocational rehabilitation
services

Educational Services

Information

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
523140 Commodity contracts brokers
523130 Commodity contracts dealers
523110 Investment bankers &
securities dealers
523210 Securities & commodity
exchanges
523120 Securities brokers
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 Outpatient care centers

511000 Publishing industries (except
Internet)
Broadcasting (except Internet) &
Telecommunications
515000 Broadcasting (except Internet)
517000 Telecommunications &
Internet service providers
Data Processing Services
518210 Data processing, hosting, &
related services
519100 Other information services
(including news syndicates &
libraries, Internet publishing
& broadcasting)
Motion Picture & Sound Recording
512100 Motion picture & video
industries (except video
rental)
512200 Sound recording industries

Manufacturing
315000 Apparel mfg.
312000 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.
325500 Paint, coating, & adhesive
mfg.
325300 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 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 Coal mining
212200 Metal ore mining
212300 Nonmetallic mineral mining
& quarrying
211110 Oil & gas extraction
213110 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
dropoff & 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 Other automotive repair &
maintenance (including oil
change & lubrication shops &
car washes)
811310 Commercial & industrial
machinery & equipment
(except automotive &
electronic) repair &
maintenance

C-10

811210 Electronic & precision
equipment repair &
maintenance
811430 Footwear & leather goods
repair
811410 Home & garden equipment &
appliance repair &
maintenance
811420 Reupholstery & furniture
repair
811490 Other personal & household
goods repair & maintenance

Professional, Scientific, &
Technical Services
541100 Legal services
541211 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
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 & 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
532220 Formal wear & costume
rental

Principal Business or Professional Activity Codes (continued)
532310 General rental centers
532230 Video tape & disc rental
532290 Other consumer goods rental

Religious, Grantmaking, Civic,
Professional, & Similar
Organizations
813000 Religious, grantmaking, civic,
professional, & similar
organizations

Retail Trade
Building Material & Garden
Equipment & Supplies Dealers
444130 Hardware stores
444110 Home centers
444200 Lawn & garden equipment &
supplies stores
444120 Paint & wallpaper stores
444190 Other building materials
dealers
Clothing & Accessories Stores
448130 Children’s & infants’ clothing
stores
448150 Clothing accessories stores
448140 Family clothing stores
448310 Jewelry stores
448320 Luggage & leather goods
stores
448110 Men’s clothing stores
448210 Shoe stores
448120 Women’s clothing stores
448190 Other clothing stores
Electronic & Appliance Stores
443130 Camera & photographic
supplies stores
443120 Computer & software stores
443111 Household appliance stores
443112 Radio, television, & other
electronics stores
Food & Beverage Stores
445310 Beer, wine, & liquor stores
445220 Fish & seafood markets
445230 Fruit & vegetable markets
445100 Grocery stores (including
supermarkets & convenience
stores without gas)
445210 Meat markets
445290 Other specialty food stores
Furniture & Home Furnishing Stores
442110 Furniture stores
442200 Home furnishings stores

Gasoline Stations
447100 Gasoline stations (including
convenience stores with gas)
General Merchandise Stores
452000 General merchandise stores
Health & Personal Care Stores
446120 Cosmetics, beauty supplies, &
perfume stores
446130 Optical goods stores
446110 Pharmacies & drug stores
446190 Other health & personal care
stores
Motor Vehicle & Parts Dealers
441300 Automotive parts, accessories,
& tire stores
441222 Boat dealers
441221 Motorcycle dealers
441110 New car dealers
441210 Recreational vehicle dealers
(including motor home &
travel trailer dealers)
441120 Used car dealers
441229 All other motor vehicle
dealers
Sporting Goods, Hobby, Book, &
Music Stores
451211 Book stores
451120 Hobby, toy, & game stores
451140 Musical instrument &
supplies stores
451212 News dealers & newsstands
451220 Prerecorded tape, compact
disc, & record stores
451130 Sewing, needlework, & piece
goods stores
451110 Sporting goods stores
Miscellaneous Store Retailers
453920 Art dealers
453110 Florists
453220 Gift, novelty, & souvenir
stores
453930 Manufactured (mobile) home
dealers
453210 Office supplies & stationery
stores
453910 Pet & pet supplies stores
453310 Used merchandise stores
453990 All other miscellaneous store
retailers (including tobacco,
candle, & trophy shops)
Nonstore Retailers
454112 Electronic auctions
454111 Electronic shopping
454310 Fuel dealers

454113 Mail-order houses
454210 Vending machine operators
454390 Other direct selling
establishments (including
door-to-door retailing, frozen
food plan providers, party
plan merchandisers, &
coffee-break service
providers)

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 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
423600 Electrical & electronic goods
423200 Furniture & home furnishing
423700 Hardware, & plumbing &
heating equipment & supplies
423940 Jewelry, watch, precious
stone, & precious metals

C-11
Printed on recycled paper

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
424800 Beer, wine, & distilled
alcoholic beverage
424920 Books, periodicals, &
newspapers
424600 Chemical & allied products
424210 Drugs & druggists’ sundries
424500 Farm product raw materials
424910 Farm supplies
424930 Flower, nursery stock, &
florists’ supplies
424400 Grocery & related products
424950 Paint, varnish, & supplies
424100 Paper & paper products
424700 Petroleum & petroleum
products
424940 Tobacco & tobacco products
424990 Other miscellaneous
nondurable goods

Wholesale Electronic Markets
and Agents & Brokers
425110 Business to business
electronic markets
425120 Wholesale trade agents &
brokers
999999 Unclassified establishments
(unable to classify)