Net Profit From Business

Userid: CPM

AH XSL/XML

Schema:
Leadpct: 100% Pt. size: 10
i1040x
Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

Page 1 of 13

Draft

Ok to Print

(Init. & Date) _______

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Department of the Treasury
Internal Revenue Service

2012 Instructions for Schedule C
Profit or Loss
From Business

Use Schedule C (Form 1040) to report income or loss from a business you operated or
a profession you practiced as a sole proprietor. An activity qualifies as a business if
your primary purpose for engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For example, a sporadic activity
or a hobby does 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-MISC, Miscellaneous Income. See 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.

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 2012, to claim
amortization that began in 2012, 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 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.

Future Developments
For the latest information about developments related to Schedule C (Form
1040) and its instructions, such as legislation enacted after they were published,
go to www.irs.gov/schedulec.

What's New
Standard mileage rate. The business
standard mileage rate for 2012 is 55.5
cents per mile. See the instructions for
line 9 for details.
Heavy highway vehicle use tax. This
tax has been extednde through September 30, 2017.

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

C-1
Aug 17, 2012

Cat. No. 24329W

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 domestic LLC is not treated as a separate entity for federal income tax
purposes. If you are the sole member of
a domestic LLC, file Schedule C or
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.

Page 2 of 13

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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 2012 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
elect to be treated 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
employer 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.

C-2

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, earlier.
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.
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.

Page 3 of 13

15:28 - 17-Aug-2012

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

See the Instructions for Form 8886
for more details.

Additional Information

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.

See Pub. 334 for more information for
small businesses.

Line E

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.

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 1. 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

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

C-3

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
2011 for which you received payment in
2012. 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.

Page 4 of 13

15:28 - 17-Aug-2012

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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
operation of this trade or business activity during 2012 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
activity (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 earlier apply.
See Activities That Are Not Passive Ac-

C-4

tivities 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 2012, 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 2011
Schedule C or C-EZ for this business.

Line I
If you made any payment in 2012 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.
The Guide to Information Returns in the General Instructions for Certain Information
Returns, identifies which Forms 1099
must be filed, the amounts to report, and
the due dates for the required Forms
1099.

TIP

Page 5 of 13

15:28 - 17-Aug-2012

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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 2012, 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. 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 line 1,
attach a statement explaining the difference.
Statutory employees. 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 line 1 of
Schedule C or C-EZ and check the box
on that line. Social security and Medicare tax should have been withheld from
your earnings; as a result, you do not
owe self-employment tax on these earnings. Statutory employees include
full-time life insurance agents, certain
agent or commission drivers and traveling salespersons, and certain homeworkers.
If you had both self-employment income and statutory employee income,
you must file two Schedules C. You
cannot use Schedule C-EZ or combine
these amounts on a single Schedule C.

Qualified joint ventures should
report rental real estate inCAUTION
come 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 installment method cannot be used to report income from the sale of (a) personal
property regularly sold under the installment method, or (b) real property held
for resale to customers. But the installment method can be used to report income from sales of certain residential
lots and timeshares if you elect to pay
interest on the tax due on that income after the year of sale. See section 453(l)(2)
(B) for details. If you make this election,
include the interest in the total on 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 2012 and the 3 preceding
years: gross sales, cost of goods sold,
gross profit, percentage of gross profit to
gross sales, amounts collected, and gross
profit on amounts collected.

Line 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 2012,
credit for biodiesel and renewable diesel
fuels claimed on Form 8864, credit for
alcohol and cellulosic biofuel fuels
claimed on Form 6478, credit for federal
tax paid on fuels claimed on your 2011
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 2012, 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

C-5

chapter 5 of Pub. 946 to figure the
amount.

Part II. Expenses
Capitalizing costs of property. If you
produced 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 expen-

Page 6 of 13

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

ses 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 2012 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 55.5 cents 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.

Line 12
Enter your deduction for depletion on
this line. If you have timber depletion,
attach Form T. See chapter 9 of Pub.
535 for details.

Line 13
Depreciation and section 179 expense
deduction. Depreciation is the annual
deduction allowed to recover the cost or
other basis of business or investment
property having a useful life substantially beyond the tax year. You can also depreciate improvements made to leased
business property. However, stock in
trade, inventories, and land are not depreciable. Depreciation starts when you
first use the property in your business or
for the production of income. It ends
when you take the property out of service, deduct all your depreciable cost or
other basis, or no longer use the property
in your business or for the production of
income. You can also elect under section 179 to expense part or all of the cost
of certain property you bought in 2012
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 2012;
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 2012, see Pub. 946.
Listed property generally includes
but is not limited to:

C-6

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 regular 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 2012.

Line 14
Deduct contributions to employee benefit programs that are not an incidental
part of a pension or profit-sharing plan
included on line 19. Examples are accident and health plans, group-term life
insurance, and dependent care assistance
programs. If you made contributions on
your behalf as a self-employed person to
a dependent care assistance program,
complete Form 2441, Parts I and III, to
figure your deductible contributions to
that program.
You cannot deduct contributions you
made on your behalf as a self-employed
person for group-term life insurance.
Do not include on line 14 any contributions you made on your behalf as a
self-employed person to an accident and
health plan. However, you may be able
to deduct on 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 deduc-

Page 7 of 13

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

tions. 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 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 2012 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 chap-

ter 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 2012 that also
applies to future years, deduct only the
part that applies to 2012.

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.

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

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

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 19

Line 22

For more information, see Pub. 334
or 535.

Line 18

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.

C-7

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.

Page 8 of 13

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 23

Line 24a

You can deduct the following taxes and
licenses on this line.
State and local sales taxes imposed
on you as the seller of goods or services.
If you collected this tax from the buyer,
you must also include the amount collected in gross receipts or sales on
line 1.
Real estate and personal property
taxes on business assets.
Licenses and regulatory fees for
your trade or business paid each year to
state or local governments. But some licenses, such as liquor licenses, may
have to be amortized. See 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.

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 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.

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

C-8

includes expenses for meals while traveling away from home for business and
for meals that are business-related entertainment.
Deductible expenses. Business meal
expenses 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.
Standard meal allowance. Instead of
deducting the actual cost of your meals
while traveling away from home, you
can use the standard meal allowance for
your daily meals and incidental expenses. Under this method, you deduct a
specified amount, depending on where
you travel, instead of keeping records of
your actual meal expenses. However,
you must still keep records to prove the
time, place, and business purpose of
your travel.
The standard meal allowance is the
federal 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.
See chapter 1 of Pub. 463 for details
on how to figure your deduction using

Page 9 of 13

15:28 - 17-Aug-2012

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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.

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;
Form 8844, Empowerment Zone
Employment Credit;
Form 8845, Indian Employment
Credit and
Form 8932, Credit for Employer
Differential Wage Payments.
If you provided taxable fringe
benefits to your employees,
CAUTION
such as personal use of a car,
do not deduct as wages the amount applicable to depreciation and other expenses claimed elsewhere.

!

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 agree-

C-9

ments. 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
CAUTION
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.

!

Page 10 of 13

15:28 - 17-Aug-2012

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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
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 2012 only because of the
at-risk rules is treated as a deduction allocable to the business in 2013.
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 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
2012 on line 36. The amount you can
deduct for 2012 is figured on line 42.
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)).
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.
Changing accounting methods. File
Form 3115 if you are a qualifying tax-

C-10

payer 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 .
Certain direct and indirect expenses may have to be capitalCAUTION
ized 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 2012, 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.

Page 11 of 13

15:28 - 17-Aug-2012

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Part IV. Information
on Your Vehicle
Line 44b
In most cases, commuting is travel between your home and a work location. If
you converted your vehicle during the
year from personal to business use (or
vice versa), enter your commuting miles
only for the period you drove your vehicle for business. 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
2012, 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;
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

Accommodation, Food
Services, & Drinking Places
Accommodation
721310 Rooming & boarding houses
721210 RV (recreational vehicle) parks
& recreational camps

721100

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 2012. 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 2012, 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
2012, you must complete and attach
Form 4562.
Costs of making commercial buildings
energy efficient. You may be able to

deduct part or all of the cost of modifying existing commercial buildings to
make them energy efficient. For details,
see section 179D, Notice 2006-52, Notice 2008-40, and Notice 2012-26. 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. Notice 2012-26, 2012-17
I.R.B.
847,
is
available
at
www.irs.gov/irb/2012-17_IRB/
ar08.html.
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
2012 to remove architectural or transportation barriers to individuals with
disabilities and the elderly. However,
you cannot take both a credit (on Form
8826) and a deduction for the same expenditures.
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 2012.
You can elect to amortize the remaining costs over 84 months. For amortization that begins in 2012, 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.

six-digit codes are based on the North American
Industry Classification System (NAICS).

estate agent). Now find the six-digit code assigned to
this activity (for example, 531210, the code for offices
of real estate agents and brokers) and enter it on
Schedule C or C-EZ, line B.

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

Traveler accommodation
(including hotels, motels, & bed
& breakfast inns)
Food Services & Drinking Places
722410 Drinking places (alcoholic
beverages)
722511 Full-service restaurants
722513 Limited-service restaurants

722300

C-11

Note. If your principal source of income is from
farming activities, you should file Schedule F.

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)

Page 12 of 13

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Principal Business or Professional Activity Codes (Continued)
561740

Carpet & upholstery cleaning
services
561440 Collection agencies
561450 Credit bureaus
561410 Document preparation services
561300 Employment services
561710 Exterminating & pest control
services
561210 Facilities support (management)
services
561600 Investigation & security services
561720 Janitorial services
561730 Landscaping services
561110 Office administrative services
561420 Telephone call centers
(including telephone answering
services & telemarketing
bureaus)
561500 Travel arrangement &
reservation services
561490 Other business support services
(including repossession services,
court reporting, & stenotype
services)
561790 Other services to buildings &
dwellings
561900 Other support services
(including packaging & labeling
services, & convention & trade
show organizers)
Waste Management & Remediation
Services
562000 Waste management &
remediation services

Agriculture, Forestry, Hunting,
& Fishing
112900

Animal production (including
breeding of cats and dogs)
114110 Fishing
113000 Forestry & logging (including
forest nurseries & timber tracts)
114210 Hunting & trapping
Support Activities for Agriculture &
Forestry
115210 Support activities for animal
production (including farriers)
115110 Support activities for crop
production (including cotton
ginning, soil preparation,
planting, & cultivating)
115310 Support activities for forestry

Arts, Entertainment, &
Recreation

Amusement, Gambling, & Recreation
Industries
713100 Amusement parks & arcades
713200 Gambling industries
713900 Other amusement & recreation
services (including golf courses,
skiing facilities, marinas, fitness
centers, bowling centers, skating
rinks, miniature golf courses)
Museums, Historical Sites, & Similar
Institutions
712100 Museums, historical sites, &
similar institutions
Performing Arts, Spectator Sports, &
Related Industries
711410 Agents & managers for artists,
athletes, entertainers, & other
public figures
711510 Independent artists, writers, &
performers
711100 Performing arts companies
711300 Promoters of performing arts,
sports, & similar events
711210 Spectator sports (including
professional sports clubs &
racetrack operations)

Construction of Buildings
236200
236100

Nonresidential building
construction
Residential building
construction

Heavy and Civil Engineering
Construction
237310 Highway, street, & bridge
construction
237210 Land subdivision
237100 Utility system construction
237990 Other heavy & civil engineering
construction
Specialty Trade Contractors
238310 Drywall & insulation
contractors
238210 Electrical contractors
238350 Finish carpentry contractors
238330 Flooring contractors
238130 Framing carpentry contractors
238150 Glass & glazing contractors
238140 Masonry contractors
238320 Painting & wall covering
contractors
238220 Plumbing, heating & airconditioning contractors
238110 Poured concrete foundation &
structure contractors
238160 Roofing contractors
238170 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

Educational Services
611000

Educational services (including
schools, colleges, &
universities)

Finance & Insurance

Credit Intermediation & Related
Activities
522100 Depository credit intermediation
(including commercial banking,
savings institutions, & credit
unions)
522200 Nondepository credit
intermediation (including sales
financing & consumer lending)
522300 Activities related to credit
intermediation (including loan
brokers)
Insurance Agents, Brokers, & Related
Activities
524210 Insurance agencies &
brokerages
524290 Other insurance related
activities
Securities, Commodity Contracts, &
Other Financial Investments & Related
Activities
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
621340
621111
621112
621391
621399
621400
621900

Offices of optometrists
Offices of physical,
occupational & speech
therapists, & audiologists
Offices of physicians (except
mental health specialists)
Offices of physicians, mental
health specialists
Offices of podiatrists
Offices of all other
miscellaneous health
practitioners
Outpatient care centers
Other ambulatory health care
services (including ambulance
services, blood, & organ banks)

Hospitals
622000 Hospitals
Nursing & Residential Care Facilities
623000 Nursing & residential care
facilities
Social Assistance
624410 Child day care services
624200 Community food & housing, &
emergency & other relief
services
624100 Individual & family services
624310 Vocational rehabilitation
services

Information
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
312000

Apparel mfg.
Beverage & tobacco product
mfg.
334000 Computer & electronic product
mfg.
335000 Electrical equipment, appliance,
& component mfg.
332000 Fabricated metal product mfg.
337000 Furniture & related product mfg.
333000 Machinery mfg.
339110 Medical equipment & supplies
mfg.
322000 Paper mfg.
324100 Petroleum & coal products mfg.
326000 Plastics & rubber products mfg.
331000 Primary metal mfg.
323100 Printing & related support
activities
313000 Textile mills
314000 Textile product mills
336000 Transportation equipment mfg.
321000 Wood product mfg.
339900 Other miscellaneous mfg.
Chemical Manufacturing
325100 Basic chemical mfg.
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.

C-12

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
212200
212300
211110
213110

Coal mining
Metal ore mining
Nonmetallic mineral mining &
quarrying
Oil & gas extraction
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
811210 Electronic & precision
equipment repair & maintenance

Page 13 of 13

Fileid: Instructions/I1040SCHC/2012/A/XML/Cycle02/source

15:28 - 17-Aug-2012

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Principal Business or Professional Activity Codes (Continued)
811430
811410
811420
811490

Footwear & leather goods repair
Home & garden equipment &
appliance repair & maintenance
Reupholstery & furniture repair
Other personal & household
goods repair & maintenance

Professional, Scientific, &
Technical Services
541100
541211

Legal services
Offices of certified public
accountants
541214 Payroll services
541213 Tax preparation services
541219 Other accounting services
Architectural, Engineering, & Related
Services
541310 Architectural services
541350 Building inspection services
541340 Drafting services
541330 Engineering services
541360 Geophysical surveying &
mapping services
541320 Landscape architecture services
541370 Surveying & mapping (except
geophysical) services
541380 Testing laboratories
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
532220
532310
532230
532290

Consumer electronics &
appliances rental
Formal wear & costume rental
General rental centers
Video tape & disc rental
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
443142 Electronics stores
443141 Household appliance 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

441228

Motorcycle, ATV, and all other
motor vehicle dealers
441110 New car dealers
441210 Recreational vehicle dealers
(including motor home & travel
trailer dealers)
441120 Used car dealers
Sporting Goods, Hobby, Book, & Music
Stores
451211 Book stores
451120 Hobby, toy, & game stores
451140 Musical instrument & supplies
stores
451212 News dealers & newsstands
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
485210
486000
482110
487000
485410
484200
485300
485110
483000
485990

C-13

Air transportation
Charter bus industry
General freight trucking, local
General freight trucking, long
distance
Interurban & rural bus
transportation
Pipeline transportation
Rail transportation
Scenic & sightseeing
transportation
School & employee bus
transportation
Specialized freight trucking
(including household moving
vans)
Taxi & limousine service
Urban transit systems
Water transportation
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
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
425120

Business to business electronic
markets
Wholesale trade agents &
brokers