U.S. Individual Income Tax Return

Department of the Treasury
Internal Revenue Service

2018 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 Schedule 1 (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.

461 and its instructions for details on the
excess business loss limitation.
Deduction for qualified business income. For tax years beginning after
2017, you may be entitled to a deduction
of up to 20% of your qualified business
income from your qualified trade or
businesses plus 20% of the aggregate
amount of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.
The deduction is subject to various limitations, such as limitations based on the
type of your trade or business, your taxable income, the amount of W-2 wages
paid with respect to the qualified trade
or business, and the unadjusted basis of
qualified property held by your trade or
business. You will claim this deduction
on Form 1040, not on Schedule C. Unlike other deductions, this deduction can
be taken in addition to the standard or
itemized deductions. For more information, see the Instructions for Form 1040
and Pub. 535.
Business interest expense limitation.
For tax years beginning after 2017, your
business interest expense deduction may
be limited. See Limitation on business
interest under Lines 16a and 16b, later,
for more information.
Deductions for business meal and entertainment expenses. You can no longer deduct entertainment expenses. You
may still deduct 50% of your business
meal expenses that are not entertainment
expenses. See Line 24b, later, for more

Future Developments
For the latest information about developments related to Schedule C and its
instructions, such as legislation enacted
after they were published, go to IRS.gov/
ScheduleC.

What's New
Small business taxpayers. For tax
years beginning after 2017, more small
business taxpayers (defined later in Part
III) may qualify to use the cash method
of accounting and be exempt from capitalizing certain expenses under section
263A. In addition, small business taxpayers may not be required to account
for inventories under section 471 and are
not subject to the business interest expense limitation.
Excess business loss limitation. If you
report a loss on line 31 of your Schedule C (Form 1040), you may be subject
to a new business loss limitation. The
disallowed loss resulting from this new
limitation will not be reflected on
line 31 of your Schedule C. Instead, use
the new Form 461 to determine the
amount of your excess business loss,
which will be included as income on
Schedule 1 (Form 1040), line 21. Any
disallowed loss resulting from this limitation will be treated as a net operating
loss that must be carried forward and deducted in a subsequent year. See Form

C-1
Nov 16, 2018

Cat. No. 24329W

information about deducting business
meal expenses.
Expired employment credits. At the
time these instructions went to print, the
empowerment zone employment credit
and the Indian employment credit had
expired. If extended for 2018, claiming
these credits could affect the amount
you can deduct on line 26. To find out if
legislation extended these credits, go to
IRS.gov/ScheduleC.
Standard mileage rate. The business
standard mileage rate for 2018 increased
to 54.5 cents per mile.

Reminders
Small Business and Self-Employed
(SB/SE) Tax Center. Do you need help
with a tax issue or preparing your return,
or do you need a free publication or
form? SB/SE serves taxpayers who file
Form 1040, Schedules C, E, F, or Form
2106, as well as small business taxpayers with assets under $10 million. For
additional information, visit the Small
Business and Self-Employed Tax Center
at IRS.gov/SmallBiz.
Sharing Economy Tax Center. The
sharing (or on-demand, gig, or access)
economy refers to an emerging area of
activity that involves people using technology advancements to arrange transactions that generate revenue from sharing
assets or providing services upon request. Visit IRS.gov/Sharing to get more
information about the tax consequences
of participating in the sharing economy.

General
Instructions
Other Schedules and Forms
You May Have To File

• Schedule A (Form 1040) to deduct
interest, taxes, and casualty losses not
related to your business.
• Schedule E (Form 1040) to report
rental real estate and royalty income or
(loss) that is not subject to
self-employment tax.
• Schedule F (Form 1040) to report
profit or (loss) from farming.
• Schedule J (Form 1040) to figure
your tax by averaging your farming or
fishing income over the previous 3
years. Doing so may reduce your tax.
• Schedule SE (Form 1040) to pay
self-employment tax on income from
any trade or business.
• Form 461 to report your excess
business loss.
• 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 2018, to claim
amortization that began in 2018, 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 apply a limitation to
your loss if you have a business loss and
you have amounts invested in the
business for which you are not at risk.
• Form 8582 to apply a limitation to
your loss from passive activities.
• Form 8594 to report certain
purchases or sales of groups of assets
that constitute a trade or business.
• Form 8824 to report like-kind
exchanges.
• Form 8829 to claim actual
expenses for business use of your home.
• Form 8990 to determine whether
your business interest deduction is
limited.
Also, see the Qualified Business Income
Deduction Worksheet in the Instructions
for Form 1040 or Pub. 535 to figure a
deduction for qualified business income.

Single-member limited liability company (LLC). Generally, a single-member domestic LLC is not treated as a separate entity for federal income tax
purposes. If you are the sole member of
a domestic LLC, file Schedule C or
C-EZ (or Schedule E or F, if applicable)
unless you have elected to treat the domestic LLC as a corporation. See Form
8832 for details on making this election
and for information about the tax treatment of a foreign LLC.
Single-member limited liability companies (LLCs) with employees. A single-member LLC must file employment
tax returns using the LLC's name and
employer identification number (EIN)
rather than the owner's name and EIN,
even if the LLC is not treated as a separate entity for federal income tax purposes.
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 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
Line I, later, and the 2018 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.

Business Owned and
Operated by Spouses
Generally, if you and your spouse jointly own and operate an unincorporated
business and share in the profits and losses, you are partners in a partnership,
whether or not you have a formal partnership agreement. You generally have
to file Form 1065 instead of Schedule C
or C-EZ for your joint business activity;
however, you may not have to file Form
1065 if either of the following applies.
• You and your spouse elect to be
treated as a qualified joint venture. See
Qualified Joint Venture next.

C-2

• You and your spouse wholly own
the unincorporated business as community property and you treat the business as
a sole proprietorship. See Community
Income, later.
Otherwise, use Form 1065. See Pub. 541
for information about partnerships.
Qualified Joint Venture
You and your spouse can elect to treat
an unincorporated business as a qualified joint venture instead of a partnership if you:
• Each materially participate in the
business (see Material participation, later, in the instructions for line G),
• Are the only owners of the business, and
• File a joint return for the tax year.
Making the election will allow you to
avoid the complexity of Form 1065, but
still give each of you credit for social security earnings on which retirement benefits, disability benefits, survivor benefits, and insurance (Medicare) benefits
are based. In most cases, this election
will not increase the total tax owed on
the joint return.
Jointly owned property. You and your
spouse must operate a business to make
this election. Do not make the election
for jointly owned property that is not a
trade or business.
Making the election. To make this
election, divide all items of income,
gain, loss, deduction, and credit attributable to the business between you and
your spouse based on your interests in
the business. Each of you must file a
separate Schedule C, C-EZ, or F. Enter
your share of the applicable income, deduction or (loss), on the appropriate
lines of your separate Schedule C, C-EZ,
or F. Each of you also may need to file a
separate Schedule SE to pay self-employment tax. If the business was taxed
as a partnership before you made the
election, the partnership will be treated
as terminating at the end of the preceding tax year. For information on how to
report the termination of the partnership,
see Pub. 541.
Revoking the election. The election
can be revoked only with the permission
of the IRS. However, the election remains in effect only for as long as you
and your spouse continue to meet the requirements to make the election. If you
and your spouse fail to meet the requirements for any year, you will need to
make a new election to be treated as a

qualified joint venture in any future
year.
Employer
identification
number
(EIN). You and your spouse do not
need to obtain an EIN to make the election. But you may need an EIN to file
other returns, such as employment or excise tax returns. To apply for an EIN,
see the Instructions for Form SS-4.
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.
More information. For more information on qualified joint ventures, go to
IRS.gov/QJV.
Community Income
If you and your spouse wholly own an
unincorporated business as community
property under the community property
laws of a state, foreign country, or U.S.
possession, you can treat your wholly
owned, unincorporated business as a
sole proprietorship, instead of a partnership. Any change in your reporting position will be treated as a conversion of
the entity.
Report your income and deductions
as follows.
• If only one spouse participates in
the business, all of the income from that
business is the self-employment earnings of the spouse who carried on the
business.
• If both spouses participate, the income and deductions are allocated to the
spouses based on their distributive
shares.
• If either or both spouses are partners in a partnership, see Pub. 541.
• If both spouses elected to treat the
business as a qualifying joint venture,
see Qualified Joint Venture, earlier.
States with community property laws
include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin. See Pub.
555 for more information about community property laws.

Reportable Transaction
Disclosure Statement
Use Form 8886 to disclose information
for each reportable transaction in which
you participated. Form 8886 must be
filed for each tax year that your federal
income tax liability is affected by your
participation in the transaction. You may
have to pay a penalty if you are required
to file Form 8886 but do not do so. You
also may 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.
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 10, by the amount of the deduction. Next to line 10, enter “CCF”
and the amount of the deduction. For details, see Pub. 595.

Additional Information
See Pub. 334 for more information for
small businesses.

C-3

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 B
Enter on line B the six-digit code from
the Principal Business or Professional
Activity Codes chart at the end of these
instructions.

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 on this line. Do not enter another
taxpayer's EIN (for example, from any
Forms 1099-MISC that you received). If
you do not have an EIN, leave line D
blank.
You need an EIN only if you have a
qualified retirement plan or are required
to file employment, excise, alcohol, tobacco, or firearms returns, or are a payer
of gambling winnings. If you need an
EIN, see the Instructions for Form SS-4.
Single-member LLCs. If you are the
sole owner of an LLC that is not treated
as a separate entity for federal income
tax purposes, enter on line D the EIN
that was issued to the LLC (in the LLC's
legal name) for a qualified retirement
plan, to file employment, excise, alcohol, tobacco, or firearms returns, or as a
payer of gambling winnings. If you do
not have such an EIN, leave line D
blank.

Line E
Enter your business address. Show a
street address instead of a box number.
Include the suite or room number, if
any. If you conducted the business from
your home located at the address shown
on Form 1040, page 1, you do not have
to complete this line.

Line F
Generally, you can use the cash method,
an accrual method, or any other method
permitted by the Internal Revenue Code.
In all cases, the method used must clearly reflect income. Unless you are a small
business taxpayer (defined later in Part
III), you must use an accrual method for
sales and purchases of inventory items.
Special rules apply to long-term contracts (see section 460 for details).
If you use the cash method, show all
items of taxable income actually or constructively received during the year (in
cash, property, or services). Income is
constructively received when it is credited to your account or set aside for you
to use. Also, show amounts actually paid
during the year for deductible expenses.
However, if the payment of an expenditure creates an asset having a useful life
that extends beyond 12 months or the
end of the next taxable 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.
For amounts includible in income and
deductible as expense under an accrual
method, 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 non-incidental materials and
supplies. You accrued sales in 2017 for
which you received payment in 2018.
You must report those sales in both
years as a result of changing your accounting method and must make a section 481(a) adjustment to prevent duplication of income.
A net negative section 481 adjustment is generally taken into account in
the year of change. A net positive section 481(a) adjustment is generally taken

into account over a period of 4 years. Include any net positive section 481(a) adjustments on line 6. If the net section
481(a) adjustment is negative, report it
in Part V.
More information. For more information about changing your accounting
method and the section 481(a) adjustment, see the Instructions for Form
3115. Additional information also is
available in various revenue procedures.
See Rev. Proc. 2015-13 for the general
procedures to obtain the advance
(non-automatic) consent or automatic
consent of the Commissioner to change
a method of accounting. Rev. Proc.
2015-13 is available at IRS.gov/irb/
2015-5_IRB#RP-2015-13. See Rev.
Proc. 2018-31 for a list of automatic
changes, including a description of its
effect on prior lists of automatic
changes. Rev. Proc. 2018-31 is available
IRS.gov/irb/
at
2018-22_IRB#RP-2018-31.

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, check
the “Yes” box. Otherwise, check the
“No” box. If you check the “No” box,
this activity is passive. If you have a loss
from a passive activity, see Limit on losses, later. If you have a profit from the
rental of property to a nonpassive activity, see Recharacterization of Passive Income in Pub. 925 to find out how to report the net income.
Material participation. For purposes
of the seven material participation tests
listed later, participation generally includes any work you did in connection
with an activity if you owned an interest
in the activity at the time you did the
work. The capacity in which you did the
work does not matter. However, work is
not treated as participation if it is work
that an owner would not customarily do
in the same type of activity and one of
your main reasons for doing the work
was to avoid the disallowance of losses
or credits from the activity under the
passive activity rules.
Work you did as an investor in an activity is not treated as participation unless you were directly involved in the
day-to-day management or operations of
the activity. Work done as an investor
includes:

C-4

• 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 Qualified Joint Venture,
earlier).
For purposes of the passive activity
rules, you materially participated in the
operation of this trade or business activity during 2018 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 personal property. Generally, a rental activity (such as long-term
equipment leasing) is a passive activity
even if you materially participated in the
activity. However, if you met any of the
five exceptions listed under Rental Activities in the Instructions for Form
8582, the rental of the property is not
treated as a rental activity and the material participation rules explained earlier
apply.
Exception for oil and gas. If you are
filing Schedule C to report income and
deductions from an oil or gas well in
which you own a working interest directly or through an entity that does not
limit your liability, check the “Yes” box.
The activity of owning a working interest is not a passive activity, regardless of
your participation.
Limit on losses. Your business activity
loss may be limited if you checked the
“No” box on line G. In addition, your
rental activity loss may be limited even
if you materially participated. In general, a business activity in which you do
not materially participate or a rental activity is a passive activity and you have
to use Form 8582 to apply a limitation
that may reduce the loss, if any, that you
may enter on Schedule C, line 31. For
details, see Pub. 925.

Line H
If you started or acquired this business
in 2018, 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 2017
Schedule C or C-EZ for this business.

Line I
If you made any payment in 2018 that
would require you to file any Forms
1099, check the “Yes” box. Otherwise,
check the “No” box.
You may have to file information returns for wages paid to employees, certain payments of fees and other nonemployee compensation, interest, rents,
royalties, real estate transactions, annuities, and pensions. You also may 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 Re-

TIP turns in the 2018 General In-

structions for Certain Information Returns identifies which Forms
1099 must be filed, the amounts to report, and the due dates for the required
Forms 1099.

Part I. Income
Except as otherwise provided in the Internal Revenue Code, gross income includes income from whatever source derived. In certain circumstances, however, gross income does not include extraterritorial income that is qualifying foreign trade income. Use Form 8873 to
figure the extraterritorial income exclusion. Report it on Schedule C as explained in the Instructions for Form
8873.
If you were a debtor in a chapter 11
bankruptcy case during 2018, see Chapter 11 Bankruptcy Cases in the Instructions for Form 1040 (under Income) and
the Instructions for Schedule SE.
Income you report on Sched-

TIP ule C may be qualified business

income and entitle you to a deduction on Form 1040, line 9. Be sure to
use the Qualified Business Income Deduction Worksheet in the Instructions
for Form 1040 or Pub. 535 to figure
your deduction, if any. Also, see Pub.
535 for more information about this deduction.

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

C-5

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 income
CAUTION not subject to self-employment
tax on Schedule E. See Qualified Joint
Venture, earlier, and the Instructions for
Schedule E.

!

Installment sales. Generally, the installment method cannot be used to report income from the sale of (a) personal
property regularly sold under the installment method, or (b) real property held
for resale to customers. But the installment method can be used to report income from sales of certain residential
lots and timeshares if you elect to pay
interest on the tax due on that income after the year of sale. See section 453(l)(2)
(B) for details. If you make this election,
include the interest in the total on
Schedule 4 (Form 1040), line 62. Check
box c and enter the amount of interest
and “453(l)(3)” on the line next to that
box.
If you use the installment method, attach a statement to your return. Show
separately for 2018 and the 3 preceding
years: gross sales, cost of goods sold,
gross profit, percentage of gross profit to
gross sales, amounts collected, and gross
profit on amounts collected.

Line 2
Report your sales returns and allowances as a positive number on line 2. A
sales return is a cash or credit refund
you gave to customers who returned defective, damaged, or unwanted products.
A sales allowance is a reduction in the
selling price of products, instead of a
cash or credit refund.

Line 6
Report on line 6 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 2018,
any amount of credit for biofuel claimed
on line 2 of Form 6478, any amount of
credit for biodiesel and renewable diesel
fuels claimed on line 8 of Form 8864,
credit for federal tax paid on fuels
claimed on your 2017 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 Line 13, later)
dropped to 50% or less in 2018, report
on this line any recapture of excess depreciation, including any section 179 expense deduction. Use Part IV of Form
4797 to figure the recapture. Also, if the
business use percentage drops to 50% or
less on leased listed property (other than
a vehicle), include on this line any inclusion amount. See chapter 5 of Pub. 946
to figure the amount.

Part II. Expenses
Capitalizing costs of producing property and acquiring property for resale. If you produced real or tangible
personal property or acquired real or
personal property for resale, you generally must capitalize certain expenses in
inventory or other property. These expenses include the direct costs of the
property and any indirect costs properly
allocable to that property. Reduce the
amounts on lines 8 through 26 and Part
V by amounts capitalized. See Pub. 538
for a discussion of uniform capitalization rules.
Exception for a small business taxpayer. A small business taxpayer (defined later in Part III) is not required to

capitalize certain expenses to inventory
or other property. See Pub. 538 for more
details.
Exception for creative property. If
you are a freelance artist, author, or photographer, you may be exempt from the
capitalization rules. However, your personal efforts must have created (or reasonably be expected to create) the property. This exception does not apply to
any expense related to printing, photographic plates, motion picture films, 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 2018 only if you:
• Owned the vehicle and used the
standard mileage rate for the first year
you placed the vehicle in service, or
• Leased the vehicle and are using
the standard mileage rate for the entire
lease period.
If you take the standard mileage rate:
• Multiply the number of business
miles driven by 54.5 cents, and
• Add to this amount your parking
fees and tolls.
Enter the total on line 9. Do not deduct depreciation, rent or lease payments, or your actual operating expenses.
If you deduct actual expenses:
• Include on line 9 the business portion of expenses for gasoline, oil, repairs, insurance, license plates, etc., and
• Show depreciation on line 13 and
rent or lease payments on line 20a.
For details, see chapter 4 of Pub. 463.
Information on your vehicle. If you
claim any car and truck expenses, you
must provide certain information on the
use of your vehicle by completing one
of the following.
1. Complete Schedule C, Part IV, or
Schedule C-EZ, Part III, if (a) you are

C-6

claiming the standard mileage rate, you
lease your vehicle, or your vehicle is
fully depreciated, and (b) you are not required to file Form 4562 for any other
reason. If you used more than one vehicle during the year, attach a statement
with the information requested in Schedule C, Part IV, or Schedule C-EZ, Part
III, for each additional vehicle.
2. Complete Form 4562, Part V, if
you are claiming depreciation on your
vehicle or you are required to file Form
4562 for any other reason (see Line 13,
later).

Line 10
Enter the total commissions and fees for
the tax year. Do not include commissions or fees that are capitalized or deducted elsewhere on your return.
You must file Form 1099-MISC to
report certain commissions and fees of
$600 or more during the year. See the
Instructions for Form 1099-MISC for
details.
Sales of property. Generally, commissions and other fees paid to facilitate the
sale of property must be capitalized.
However, if you are a dealer in property,
enter on line 10 the commissions and
fees you paid to facilitate the sale of that
property.
Note. A dealer in property is a person
who regularly sells property in the ordinary course of their trade or business.
For more information on the capitalization of commissions and fees, see the
examples under Regulations section
1.263(a)-1(e).

Line 11
Enter the total cost of contract labor for
the tax year. Contract labor includes
payments to persons you do not treat as
employees (for example, independent
contractors) for services performed for
your trade or business. Do not include
contract labor deducted elsewhere on
your return, such as contract labor includible on line 17, 21, 26, or 37. Also,
do not include salaries and wages paid
to your employees; instead, see Line 26,
later.
You must file Form 1099-MISC 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 (Timber). 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 also can 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 also can elect under section 179 to expense part or all of the cost
of certain property you bought in 2018
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 2018;
• Depreciation on listed property
(defined later), regardless of the date it
was placed in service; or
• A section 179 expense deduction.
If you acquired depreciable property
for the first time in 2018, see Pub. 946.
Listed property. Listed property generally includes but is not limited to:
• Passenger automobiles weighing
6,000 pounds or less;
• Any other property used for transportation if the nature of the property
lends itself to personal use, such as motorcycles, pickup trucks, etc.; and
• Any property used for entertainment or recreational purposes (such as
photographic, phonographic, communication, and video recording equipment).
Exception. Listed property does not
include photographic, phonographic,
communication, or video equipment
used exclusively in your trade or business or at your regular business establishment. For purposes of this exception,
a portion of your home is treated as a

regular business establishment only if
that portion meets the requirements under section 280A(c)(1) for deducting expenses for the business use of your
home.
Recapture. See Line 6, earlier, if the
business use percentage of any listed
property dropped to 50% or less in 2018.

Line 14
Deduct contributions to employee benefit programs that are not an incidental
part of a pension or profit-sharing plan
included on line 19. Examples are accident and health plans, group-term life
insurance, and dependent care assistance
programs. If you made contributions on
your behalf as a self-employed person to
a dependent care assistance program,
complete Form 2441, Parts I and III, to
figure your deductible contributions to
that program.
You cannot deduct contributions you
made on your behalf as a self-employed
person for group-term life insurance.
Do not include on line 14 any contributions you made on your behalf as a
self-employed person to an accident and
health plan. However, you may be able
to deduct on Schedule 1 (Form 1040),
line 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
Schedule 1 (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 depend-

C-7

ing on its type. For example, home
mortgage interest and investment interest are treated differently. “Interest allocation” rules require you to allocate
(classify) your interest expense so it is
deducted (or capitalized) on the correct
line of your return and receives the right
tax treatment. These rules could affect
how much interest you are allowed to
deduct on Schedule C 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.
Limitation on business interest. You
must file Form 8990 to deduct any interest expenses of this trade or business unless you are a small business taxpayer
(defined later in Part III) or meet one of
the other filing exceptions listed in the
Instructions for Form 8990.
If you must file Form 8990, figure
the limit on your business interest expenses on Form 8990 before completing
lines 16a and 16b. Follow the instructions in How to report, later, but report
the reduced interest on lines 16a and
16b. The interest you can't deduct this
year will carry forward to next year on
Form 8990.
If you are a small business taxpayer
or meet one of the other filing exceptions for Form 8990, follow the instructions in How to report, later, and report
all of your deductible interest on lines
16a and 16b.
How to report. If you have a mortgage
on real property used in your business,
enter on line 16a the interest you paid
for 2018 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 re-

ceived the Form 1098. In the margin
next to line 16b, enter “See attached.”
If you paid interest in 2018 that also
applies to future years, deduct only the
part that applies to 2018.

Line 17
Include on this line fees charged by accountants and attorneys that are ordinary
and necessary expenses directly related
to operating your business.
Include fees for tax advice related to
your business and for preparation of the
tax forms related to your business. Also,
include expenses incurred in resolving
asserted tax deficiencies related to your
business.
For more information, see Pub. 334
or 535.

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

Line 19
Enter your deduction for the contributions you made for the benefit of your
employees to a pension, profit-sharing,
or annuity plan (including SEP, SIMPLE, and SARSEP plans described in
Pub. 560). If the plan included you as a
self-employed person, enter the contributions made as an employer on your
behalf on Schedule 1 (Form 1040),
line 28, or Form 1040NR, line 28, not
on Schedule C.
This deduction may be subject to limitations. For more information on potential limitations, see Pub. 560.
In most cases, you must file the applicable form listed below if you maintain a pension, profit-sharing, or other
funded-deferred compensation plan. The
filing requirement is not affected by
whether or not the plan qualified under
the Internal Revenue Code, or whether
or not you claim a deduction for the current tax year. There is a penalty for failure to timely file these forms.
Form 5500-EZ. File this form if you
have a one-participant retirement plan
that meets certain requirements. A
one-participant plan is a plan that covers
only you (or you and your spouse).
Form 5500-SF. File this form electronically with the Department of Labor (at
www.efast.dol.gov) if you have a small
plan (fewer than 100 participants in

most cases) that meets certain requirements.
Form 5500. File this form electronically with the Department of Labor (at
www.efast.dol.gov) for a plan that does
not meet the requirements for filing
Form 5500-EZ or Form 5500-SF.
For details, see Pub. 560.

Lines 20a and 20b
If you rented or leased vehicles, machinery, or equipment, enter on line 20a the
business portion of your rental cost. But
if you leased a vehicle for a term of 30
days or more, you may have to reduce
your deduction by 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 also can 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 also must include the amount col-

C-8

lected 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.
Do not deduct the following.
• Federal income taxes, including
your self-employment tax. However,
you can deduct one-half of your self-employment tax on Schedule 1 (Form
1040), line 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 pe-

riod 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 on
this line. Instead, see Line 24b, later. Do
not include entertainment expenses on
this line.
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 Line 24b, later).
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 deductible business meal expenses. This includes expenses for meals
while traveling away from home for
business. Your deductible business meal
expenses are a percentage of your actual
business meal expenses or standard meal
allowance. See Amount of deduction,
later, for the percentage that applies to
your actual meal expenses or standard
meal allowance. In most cases, the percentage is 50%.
Do not include entertainment expenses on this line.
Business meal expenses. You can deduct a percentage of the actual cost of a
meal if the following conditions are met.

• The meal expense was an ordinary
and necessary expense in carrying on
your trade or business;
• The expense was not lavish or extravagant under the circumstances;
• You or your employee was present
at the meal;
• The meal was provided to a current or potential business customer, client, consultant, or similar business contact; and
• In the case of food or beverages
provided during or at an entertainment
event, the food and beverages were purchased separately from the entertainment, or the cost of the food and beverages was stated separately from the cost
of the entertainment on one or more
bills, invoices, or receipts.
You cannot avoid the entertainment disallowance rule by inCAUTION flating the amount charged for
food and beverages.

!

See Notice 2018-76 for examples and
more information. Notice 2018-76 is
available
at
IRS.gov/irb/
2018-42_IRB#NOT-2018-76.
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 for locations inside and outside the
continental United States by visiting the
General Services Administration's website at www.gsa.gov.
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 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

C-9

hours of service limits include the following.
• Certain air transportation workers
(such as pilots, crew, dispatchers, mechanics, and control tower operators)
who are under Federal Aviation Administration regulations.
• Interstate truck operators who are
under DOT regulations.
• Certain merchant mariners who are
under Coast Guard regulations.
However, you can fully deduct meals
and incidentals furnished or reimbursed
to an employee if you properly treat the
expense as wages subject to withholding. You also can fully deduct meals and
incidentals provided to a nonemployee
to the extent the expenses are includible
in the gross income of that person and
reported on Form 1099-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 figure 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 reduced by the amount of the
following credit(s), if applicable.
• Work Opportunity Credit (Form
5884).
• Empowerment Zone Employment
Credit (Form 8844).
• Indian Employment Credit (Form
8845).
• Credit for Employer Differential
Wage Payments (Form 8932).
• Employer Credit for Paid Family
and Medical Leave (Form 8994).
Do not reduce your deduction for any
portion of a credit that was passed

through to you from a pass-through entity. See the instructions for the credit
form for more information.
Do not include salaries and wages deducted elsewhere on your return or
amounts paid to yourself.
If you provided taxable fringe
benefits to your employees, such
CAUTION 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 General 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. To claim a deduction for
business use of your home, you can use
Form 8829 or you can elect to determine
the amount of the deduction using a simplified method.
For additional information about
claiming this deduction, see Pub. 587.
If you are not using the simpliTIP fied method to determine the
amount of expenses you may deduct for business use of a home, do not
complete the additional entry spaces on
line 30 for total square footage of your
home and of the part of the home used
for business. Just include the amount
from line 36 of your Form 8829 on
line 30.
Simplified method. The simplified
method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will
figure your deduction by multiplying the
area (measured in square feet) used regularly and exclusively for business, regularly for daycare, or regularly for storage of inventory or product samples, by
$5. The area you use to figure your deduction cannot exceed 300 square feet.
You cannot use the simplified method to
figure a deduction for rental use of your
home.
Electing to use the simplified method. You choose whether or not to use
the simplified method each tax year.
Make the election by using the simplified method to figure the deduction for
the qualified business use of a home on
a timely filed, original federal income

tax return for that year. An election for a
year, once made, is irrevocable. A
change from using the simplified method in one year to actual expenses in a
succeeding year, or vice versa, is not a
change in method of accounting and
does not require the consent of the Commissioner.
If you share your home with someone
else who uses the home for a separate
business that qualifies for this deduction,
each of you may make your own election, but not for the same portion of the
home.
If you conduct more than one business that qualifies for this deduction in
your home, your election to use the simplified method applies to all your qualified business uses of your home. You
are limited to a maximum of 300 square
feet for all of the businesses you conduct
in your home that qualify for this deduction. Allocate the actual square footage
used (up to the maximum 300 square
feet) among your qualified business uses
in any reasonable manner you choose,
but you may not allocate more square
feet to a qualified business use than you
actually use in that business.
If you used your home for more
than one business, you will need
CAUTION to file a separate Schedule C for
each business. Do not combine your deductions for each business use on a single Schedule C.

!

Business use of more than one
home. You may have used more than
one home in your business. If you used
more than one home for the same business during 2018, you may elect to use
the simplified method for only one
home; you must file a Form 8829 to
claim a business use of the home deduction for any additional home. If one or
more of the homes was not used for the
entire year (for example, you moved
during the year), see Part-year use or
area changes (for simplified method only), later, and Columns (a) and (b) in the
Instructions for Form 8829.
Other requirements must still be
met. You must still meet all the use requirements to claim a deduction for
business use of the home. The simplified
method is only an alternative to the calculation, allocation, and substantiation
of actual expenses. The simplified method is not an alternative to the exclusivity
and other tests that must be met in order
to qualify for this deduction. For more

C-10

information about qualifying business
uses, see Qualifying for a Deduction in
Pub. 587.
Gross
income
limitation. The
amount of your deduction is still limited
to the gross income derived from qualified business use of the home reduced
by the business deductions that are not
related to your use of the home. If this
limitation reduces the amount of your
deduction, you cannot carryover the difference to another tax year.
Carryover of actual expenses from
Form 8829. If you used Form 8829 in a
prior year, and you had actual expenses
that you could carryover to the next
year, you cannot claim those expenses if
you are using the simplified method. Instead, the actual expenses from Form
8829 that were not allowed will be carried over to the next year that you file
Form 8829 for that business use of that
home.
Depreciation of home. You cannot
deduct any depreciation (including any
additional first-year depreciation) or section 179 expense for the portion of your
home that is used in a qualified business
use if you figure the deduction for the
business use of your home using the
simplified method. The depreciation deduction allowable for that portion of the
home for that year is deemed to be zero.
Although you cannot deduct any

TIP depreciation or section 179 ex-

pense for the portion of your
home that is a qualified business use because you elect to use the simplified
method, you may still claim depreciation
or the section 179 expense deduction on
other assets (for example, furniture and
equipment) used in the qualified business use of your home.
Figuring your allowable expenses for
business use of the home. You will
figure the deduction using Form 8829 or
the simplified method worksheet, or
both.
You may not use the simplified
method and also file Form 8829
CAUTION for the same qualified business
use of the same home.

!

Using Form 8829. Use Form 8829
to figure and claim this deduction for a
home if you are not or cannot use the
simplified method for that home. For information about claiming this deduction
using Form 8829, see the Instructions
for Form 8829 and Pub. 587.

Keep for Your Records

Simplified Method Worksheet
1.

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

1.

2.

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

2.

3.

Simplified method amount
a.

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

b.

For daycare facilities not used exclusively for business, enter the decimal amount from the Daycare Facility Worksheet;
otherwise, enter 1.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b.

c.

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

4.

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

4.

5.

Allowable expenses using the simplified method. Enter the smaller of line 1 or line 4 here and include that amount on
Schedule C, line 30. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6.

$5

Carryover of unallowed expenses from a prior year that are not allowed in 2018.
a.

Operating expenses. Enter the amount from your last Form 8829, line 42. See the Instructions for the Simplified Method
Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6a.

b.

Excess casualty losses and depreciation. Enter the amount from your last Form 8829, line 43. See the Instructions for the
Simplified Method Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6b.

Instructions for the Simplified Method Worksheet
Use this worksheet to figure the amount of expenses you may deduct for a qualified business use of a home if you are electing to use the simplified method for
that home. If you are not electing to use the simplified method, use Form 8829.
Line 1. If all gross income from your trade or business is from this qualified business use of your home, figure your gross income limitation as follows.
A.
B.
C.
D.
E.

Enter the amount from Schedule C, line 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enter any gain derived from the business use of your home and shown on Form 8949 (and included on Schedule D) or Form
4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add lines A and B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enter the total amount of any losses (as a positive number) shown on Form 8949 (and included on Schedule D) or Form 4797 that are
allocable to the business, but not allocable to the business use of the home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross income limitation. Subtract line D from line C. Enter the result here and on line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.
.
.
.
.

If some of the income is from a place of business other than your home, you must first determine the part of your gross income (Schedule C, line 7, and gains
from Form 8949, Schedule D, and Form 4797) from the business use of your home. In making this determination, consider the amount of time you spent at each
location as well as other facts. After determining the part of your gross income from the business use of your home, subtract from that amount the total expenses
shown on Schedule C, line 28, plus any losses shown on Form 8949 (and included on Schedule D) or Form 4797 that are allocable to the business in which you
use your home but that are not allocable to the business use of the home. Enter the result on line 1.
Note: If you had more than one home in which you conducted this business during the year, include only the income earned and the deductions attributable to
that income during the period you owned the home for which you elected to use the simplified method.
Line 2. If you used the same area for the entire year, enter the smaller of the square feet you actually used or 300. If you and your spouse conducted the business
as a qualified joint venture, split the square feet between you and your spouse in the same manner you split your other tax attributes. If you shared space with
someone else, used the home for business for only part of the year, or the area you used changed during the year, see Figuring your allowable expenses for
business use of the home before entering an amount on this line. Do not enter more than 300 square feet or, if applicable, the average monthly allowable square
footage on this line. See Part-year use or area changes (for simplified method only), later, for more information on how to figure your average monthly
allowable square footage.
Line 3b. If your qualified business use is providing daycare, you may need to account for the time that you used the same part of your home for other purposes.
If you used the part of your home exclusively and regularly for providing daycare, enter 1.0 on line 3b. If you did not use the part of your home exclusively for
providing daycare, complete the Daycare Facility Worksheet to figure what number to enter on line 3b.
Line 6. Since you are using the simplified method this year, you cannot deduct the amounts you entered on lines 6a and 6b this year. If you file Form 8829 next
year for your qualified business use of this home, you will be able to include these expenses when you figure your deduction.
6a. If you did not file a 2017 Form 8829, then your carryover of prior year operating expenses is the amount of operating expenses shown
in Part IV of the last Form 8829, if any, that you filed to claim a deduction for business use of the home.
6b. If you did not file a 2017 Form 8829, then your carryover of prior year excess casualty losses and depreciation is the amount of excess
casualty losses and depreciation shown in Part IV of the last Form 8829, if any, that you filed to claim a deduction for business use of
the home.

C-11

Keep for Your Records

Daycare Facility Worksheet (for simplified method)
1. Multiply days used for daycare during the year by hours used per day

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

1.

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

2.

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

3.

Instructions for the Daycare Facility Worksheet
Use this worksheet to figure the percentage to use on line 3b of the Simplified Method Worksheet. If you do not use the area of your home exclusively for daycare, you
must reduce the prescribed rate before figuring your deduction using the simplified method.
TIP

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

Line 1. Enter the total number of hours the facility was used for daycare during the year.
Example. Your home is used Monday through Friday for 12 hours per day for 250 days during the year. It also is used on 50 Saturdays for 8 hours a day. Enter 3,400 hours
on line 4 (3,000 hours for weekdays plus 400 hours for Saturdays).
Line 2. If you used your home for daycare during the entire year, multiply 365 days (366 for a leap year) by 24 hours, and enter the result.
If you started or stopped using your home for daycare during the year, you must prorate the number of hours based on the number of days the home was available for
daycare. Multiply 24 hours by the number of days available and enter that result.

Using the simplified method. Use
the Simplified Method Worksheet in
these instructions to figure your deduction for a qualified business use of your
home if you are electing to use the simplified method for that home.
Shared use (for simplified method
only). If you share your home with
someone else who uses the home for a
separate business that also qualifies for
this deduction, you may not include the
same square feet to figure your deduction as the other person. You must allocate the shared space between you and
the other person in a reasonable manner.
Example. Kristen and Lindsey are
roommates. Kristen uses 300 square feet
of their home for a qualified business
use. Lindsey uses 200 square feet of
their home for a separate qualified business use. The qualified business uses
share 100 square feet. In addition to the
portion that they do not share, Kristen
and Lindsey can both claim 50 of the
100 square feet or divide the 100 square
feet between them in any reasonable
manner. If divided evenly, Kristen could
claim 250 square feet using the simplified method and Lindsey could claim
150 square feet.
Part-year use or area changes (for
simplified method only). If your qualified business use was for a portion of the
tax year (for example, a seasonal business, a business that begins during the

year, or you moved during the year) or
you changed the square footage of your
qualified business use, your deduction is
limited to the average monthly allowable square footage. You figure the average monthly allowable square footage
by adding the amount of allowable
square feet you used in each month and
dividing the sum by 12.
When determining the average
monthly allowable square footage, you
cannot take more than 300 square feet
into account for any one month. Additionally, if your qualified business use
was less than 15 days in a month, you
must use -0- for that month.
Example 1. Andy files his federal income tax return on a calendar year basis.
On July 20, he began using 400 square
feet of his home for a qualified business
use. He continued to use the 400 square
feet until the end of the year. Andy's
average monthly allowable square footage is 125 square feet (300 square feet
for August through December divided
by the number of months in the year ((0
+ 0 + 0 + 0 + 0 + 0 + 0 + 300 + 300 +
300 + 300 + 300)/12)).
Example 2. Roland files his federal
income tax return on a calendar year basis. On April 20, he began using 100
square feet of his home for a qualified
business use. On August 5, he expanded
the area of his qualified business use to
350 square feet. Roland continued to use

C-12

the 350 square feet until the end of the
year. Roland's average monthly allowable square footage is 150 square feet
(100 square feet for May through July
and 300 square feet for August through
December divided by the number of
months in the year ((0 + 0 + 0 + 0 + 100
+ 100 +100 + 300 + 300 + 300 + 300 +
300)/12)).
Example 3. Donna files her federal
income tax return on a calendar year basis. From January 1 through July 16 she
used 300 square feet of her home for a
qualified business use. On July 17, Donna moved to a new home and immediately began using 200 square feet of the
new home for the same qualified business use. While preparing her tax return,
Donna used the simplified method to deduct expenses for the qualified business
use of her old home. Donna's average
monthly allowable square footage is 175
square feet (300 square feet for January
through July divided by the number of
months in the year ((300 +300 +300 +
300 + 300 + 300 + 300 + 0 + 0 + 0 + 0 +
0)/12)). Donna also prepared Form 8829
to deduct the actual expenses associated
with the qualified business use of her
new home.
Once you have determined your allowable square footage, enter the result
on line 2 of the Simplified Method
Worksheet.

If you moved during the year,
your average allowable square
CAUTION footage will generally be less
than 300.

!

You can use the Area Adjust-

TIP ment Worksheet in Pub. 587 to

help you determine the allowable square footage to enter on line 2 of
the Simplified Method Worksheet.
Reporting your expenses for business
use of the home. If you did not use the
simplified method, include the amount
from line 36 of Form 8829 on line 30 of
the Schedule C you are filing for that
business.
If you used the simplified method. If
you elect to use the simplified method
for the business use of a home, complete
the additional entry spaces on line 30 for
that home only. Include the amount
from line 5 of the Simplified Method
Worksheet on line 30.
If you itemize your deductions on
Schedule A, you may deduct your mortgage interest, real estate taxes, and casualty losses on Schedule A as if you did
not use your home for business. You
cannot deduct any excess mortgage interest, excess real estate taxes, or excess
casualty losses on Schedule C for this
home.
Use Part II of Schedule C to deduct
business expenses that are unrelated to
the qualified business use of the home
(for example, expenses for advertising,
wages, or supplies, or depreciation of
equipment or furniture).
Deduction figured on multiple
forms. If you used more than one home
for a business during the year, you may
use a Form 8829 for each home or you
may use the simplified method for one
home and Form 8829 for any other
home. Combine the amount you figured
using the simplified method and the
amounts you figured on your Forms
8829, and then enter the total on line 30
of the Schedule C you are filing for that
business.

Line 31
Figuring your net profit or loss. If
your expenses (including the expenses
you report on line 30) are more than
your gross income, do not enter your
loss on line 31 until you have applied
the at-risk rules and the passive activity
loss rules. To apply these rules, follow
the instructions in Line 32 and the In-

structions for Form 8582. After applying
those rules, the amount on line 31 will
be your loss, and it may be smaller than
the amount you figured by subtracting
line 30 from line 29.
If your gross income is more than
your expenses (including the expenses
you report on line 30), and you do not
have prior year unallowed passive activity losses, subtract line 30 from line 29.
The result is your net profit.
If your gross income is more than
your expenses (including the expenses
you report on line 30), and you have prior year unallowed passive activity losses, do not enter your net profit on
line 31 until you have figured the
amount of prior year unallowed passive
activity losses you may claim this year
for this activity. Use Form 8582 to figure the amount of prior year unallowed
passive activity losses you may include
on line 31. Be sure to indicate that you
are including prior year passive activity
losses by entering "PAL" to the left of
the entry space.
If you checked the "No" box on line
G, see the Instructions for Form 8582;
you may need to include information
from this schedule on that form, even if
you have a net profit.
Rental real estate activity. Unless
you are a qualifying real estate professional, a rental real estate activity is a
passive activity, even if you materially
participated in the activity. If you have a
loss, you may need to file Form 8582 to
apply a limitation that may reduce your
loss. See the Instructions for Form 8582.
Reporting your net profit or loss.
Once you have figured your net profit or
loss, report it as follows.
If you enter a loss on line 31,
you may have an excess busiCAUTION ness loss. Use Form 461 to figure your excess business loss.

!

Individuals. Enter your net profit or
loss on line 31 and include it on Schedule 1 (Form 1040), line 12. Also, include
your net profit or loss on Schedule SE,
line 2. However, if you are a statutory
employee or notary public, see Statutory
employees or Notary public, later.
Nonresident aliens. Enter your net
profit or loss on line 31 and include it on
Form 1040NR, line 13. You also should
include this amount on Schedule SE,
line 2, if you are covered under the U.S.
social security system due to an interna-

C-13

tional social security agreement currently in effect. See the Instructions for
Schedule SE for information on international social security agreements. However, if you are a statutory employee or
notary public, see Statutory employees
or Notary public, later.
Trusts and estates. Enter the net
profit or loss on line 31 and include it on
Form 1041, line 3.
Statutory employees. Enter your net
profit or loss on line 31 and include it on
Schedule 1 (Form 1040), line 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 you are required to file Schedule SE
because of other self-employment income, see the Instructions for Schedule SE.
Notary public. Do not enter your net
profit from line 31 on Schedule SE,
line 2, unless you are required to file
Schedule SE because you have other
self-employment income. See the Instructions for Schedule SE.
You can deduct one-half of your

TIP self-employment tax on Sched-

ule 1 (Form 1040), line 27 (or
Form 1040NR, line 27). See the Instructions for Schedule SE for details.
Community income. If you and your
spouse had community income and are
filing separate returns, see the Instructions for Schedule SE before figuring
self-employment tax.
Earned income credit. 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,
CAUTION line 17a. Complete all applicable steps plus Worksheet B. If you are
required to file Schedule SE, remember
to enter one-half of your self-employment tax in Part 1, line 1d, of Worksheet
B.

!

Line 32
You do not need to complete

TIP line 32 if line 7 is more than the
total of lines 28 and 30.

At-risk rules. In most cases, if you
have a business loss and amounts invested in the business for which you are not
at risk, you must complete Form 6198 to

apply a limitation that may reduce your
loss. The at-risk rules generally limit the
amount of loss (including loss on the
disposition of assets) you can claim to
the amount you could actually lose in
the business.
Check box 32b if you have amounts
invested in this business for which you
are not at risk, such as the following.
• Nonrecourse loans used to finance
the business, to acquire property used in
the business, or to acquire the business
that are not secured by your own property (other than property used in the business). 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 loss. Before determining
your loss, you must check box 32a or
32b to indicate whether the loss from
your business activity is limited by the
at-risk rules. Follow the instructions,
next, that apply to your box 32 activity.
All investment is at risk. If all
amounts are at risk in this business,
check box 32a. If you answered “Yes”
on line G, your loss will not be reduced
by the at-risk rules or the passive activity loss rules. See Line 31, earlier, for
how to report your loss.
But if you answered “No” on line G,
you may need to complete Form 8582 to
figure your loss to enter on line 31. See
the Instructions for Form 8582 for details.
Some investment is not at risk. If
some investment is not at risk, check
box 32b; the at-risk rules apply to your
loss. Be sure to attach Form 6198 to
your return.
If you answered "Yes" on line G,
complete Form 6198 to figure the loss to
enter on line 31. The passive activity
loss rules do not apply. See Line 31, earlier, for how to report your loss.

But if you answered "No" on line G,
the passive activity loss rules may apply.
First complete Form 6198 to figure the
amount of your profit or (loss) for the
at-risk activity, which may include
amounts reported on other forms and
schedules, and the at-risk amount for the
activity. Follow the Instructions for
Form 6198 to determine how much of
your Schedule C loss will be allowed.
After you figure the amount of your loss
that is allowed under the at-risk rules,
you may need to complete Form 8582 to
figure the loss to enter on line 31. See
the Instructions for Form 8582 for details.
If you checked box 32b because
some investment is not at risk
CAUTION and you do not attach Form
6198, the processing of your return may
be delayed.

!

At-risk loss deduction. Any loss from
this business not allowed for 2018 only
because of the at-risk rules is treated as a
deduction allocable to the business in
2019.
More information. For details, see the
Instructions for Form 6198 and Pub.
925.

Part III. Cost of
Goods Sold
In most cases, if you engaged in a trade
or business in which the production,
purchase, or sale of merchandise was an
income-producing factor, you must take
inventories into account at the beginning
and end of your tax year.
Exception for small business taxpayers. If you are a small business taxpayer, you can choose not to keep an inventory, but you must still use a method of
accounting for inventory that clearly reflects income. If you choose not to keep
an inventory, you won't be treated as
failing to clearly reflect income if your
method of accounting for inventory
treats inventory as non-incidental material or supplies, or conforms to your financial accounting treatment of inventories. If, however, you choose to keep an
inventory, you generally must use an accrual method of accounting and value
the inventory each year to determine
your cost of goods sold in Part III of
Schedule C.
Small business taxpayer. You qualify as a small business taxpayer if you (a)

C-14

have average annual gross receipts of
$25 million or less for the 3 prior tax
years and (b) are not a tax shelter (as defined in section 448(d)(3)).
If your business has not been in existence for all of the 3 tax-year period
used in figuring average gross receipts,
base your average on the period it has
existed, and if your business has a predecessor entity, include the gross receipts
of the predecessor entity from the 3
tax-year period when figuring average
gross receipts. If your business (or predecessor entity) had short taxable years
for any of the 3 tax-year period, annualize your business' gross receipts for the
short tax years that are part of the 3
tax-year period.
See Pub. 538 for more information.
Treating inventory as non-incidental
material or supplies. If you account for
inventories as materials and supplies
that are not incidental, you deduct the
amounts paid to acquire or produce the
inventoriable items treated as materials
and supplies in the year in which they
are first used or consumed in your operations.
Financial accounting treatment of
inventories. Your financial accounting
treatment of inventories is determined
with regard to the method of accounting
you use in your applicable financial
statement (as defined in section 451(b)
(3)) or, if you do not have an applicable
financial statement, with regard to the
method of accounting you use in your
books and records that have been prepared in accordance with your accounting procedures.
Changing your method of accounting for inventory. If you want to
change your method of accounting for
inventory, you must file Form 3115. For
details, see Line F, earlier.
More information. For more information about this exception, see Pub.
538.
Certain direct and indirect expenses may have to be capitalCAUTION ized or included in inventory.
See Part II, earlier. See Pub. 538 for additional information.

!

Line 33
Your inventories can be valued at cost,
the lower of cost or market, or any other
method approved by the IRS.

Line 35
If you are changing your method of accounting beginning with 2018, 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, earlier.

Part IV. Information
on Your Vehicle
Line 44b
In most cases, commuting is travel between your home and a work location. If
you converted your vehicle during the
year from personal to business use (or
vice versa), enter your commuting miles
only for the period you drove your vehicle for business.
Travel that meets any of the following conditions isn't commuting.
• You have at least one regular work
location away from your home and the
travel is to a temporary work location in
the same trade or business, regardless of
the distance. Generally, a temporary
work location is one where your
employment is expected to last 1 year or
less. See Pub. 463 for more details.
• The travel is to a temporary work
location outside the metropolitan area
where you live and normally work.
• Your home is your principal place
of business under section 280A(c)(1)(A)
(for purposes of deducting expenses for
business use of your home) and the
travel is to another work location in the
same trade or business, regardless of
whether that location is regular or
temporary and regardless of distance.

Line 47
Specific recordkeeping rules apply to
car or truck expenses. For more information about what records you must
keep, see Pub. 463.
You may maintain written evidence
by using an electronic storage system
that meets certain requirements. For
more information about electronic storage systems, see Pub. 583.

Part V. Other
Expenses
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
2018, you must complete and attach
Form 4562.
You can amortize such costs as:
• The cost of pollution-control facilities;
• Amounts paid for research and experimentation;
• Qualified revitalization expenditures (for buildings placed in service before 2010);
• Amounts paid to acquire, protect,
expand, register, or defend trademarks
or trade names; or
• Goodwill and certain other intangibles.
In most cases, you cannot amortize
real property construction period interest
and taxes. Special rules apply for allocating interest to real or personal property produced in your trade or business.
For a complete list, see the instructions for Form 4562, Part VI.
At-risk loss deduction. Any loss from
this business that was not allowed last
year because of the at-risk rules is treated as a deduction allocable to this business in 2018.
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 chapter 10 of
Pub. 535.
Business start-up costs. If your business began in 2018, 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

C-15

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
2018, you must complete and attach
Form 4562.
Deduction for removing barriers to
individuals with disabilities and the
elderly. You may be able to deduct up
to $15,000 of costs paid or incurred in
2018 to remove architectural or transportation barriers to individuals with
disabilities and the elderly. However,
you cannot take both a credit (on Form
8826) and a deduction for the same expenditures.
De minimis safe harbor for tangible
property. Generally, you must capitalize costs to acquire or produce real or
tangible personal property used in your
trade or business, such as buildings,
equipment or furniture. However, if you
elect to use the de minimis safe harbor
for tangible property, you may deduct de
minimis amounts paid to acquire or produce certain tangible property if these
amounts are deducted by you for financial accounting purposes or in keeping
your books and records.
If you have an applicable financial
statement, you may use this safe harbor
to deduct amounts paid for tangible
property up to $5,000 per item or invoice. If you don't have an applicable financial statement, you may use the de
minimis safe harbor to deduct amounts
paid for tangible property up to $2,500
per item or invoice.
Only deduct these amounts as other
expenses. Don't include these amounts
on any other line.
For details on making this election
and requirements for using the de minimis safe harbor for tangible property,
see chapter 1 of Pub. 535.
Excess farm loss deduction. Any loss
from this business activity, which includes processing a farm commodity as
part of your farming business, that was
not allowed last year because of the excess farm loss rules is treated as a deduction allocable to this business activity in 2018.
Film and television and live theatrical
production expenses. You can elect to
deduct costs of certain qualified film and
television productions or qualified live
theatrical productions that commenced

before 2018. For details, see chapter 7 of
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 2018.
You can elect to amortize the remaining costs over 84 months. For amortization that begins in 2018, 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.
Paperwork Reduction Act Notice. We
ask for the information on Schedule C
(Form 1040) and Schedule C-EZ (Form
1040) to carry out the Internal Revenue
laws of the United States. You are required to give us the information. We
need it to ensure that you are complying
with these laws and to allow us to figure
and collect the right amount of tax.

You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records relating to a form or its instructions must be
retained as long as their contents may
become material in the administration of
any Internal Revenue law. Generally,
tax returns and return information are
confidential, as required by section
6103.
The time needed to complete and file
Schedule C (Form 1040) will vary depending on individual circumstances.
The estimated burden for individual taxpayers filing this form is included in the
estimates shown in the instructions for
their individual income tax return. The
estimated burden for all other taxpayers
who file this form is approved under
OMB control number 1545-1974 and is
shown next.
Recordkeeping . . . . . . . . .
3 hr., 36 min.
Learning about the law or the
form . . . . . . . . . . . . . . .
1 hr., 19 min.
Preparing the form . . . . . .
1 hr., 39 min.
Copying, assembling, and sending
the form to the IRS . . . . . .
34 min.

C-16

The time needed to complete and file
Schedule C-EZ (Form 1040) will vary
depending on individual circumstances.
The estimated burden for individual taxpayers filing this form is included in the
estimates shown in the instructions for
their individual income tax return. The
estimated burden for all other taxpayers
who file this form is approved under
OMB control number 1545-1973 and is
shown next.
Recordkeeping . . . . . . . . . . .
Learning about the law or the
form . . . . . . . . . . . . . . . . .
Preparing the form . . . . . . . .
Copying, assembling, and sending the
form to the IRS . . . . . . . . . . .

45 min.
3 min.
35 min.
20 min.

If you have comments concerning the
accuracy of these time estimates or suggestions for making this form simpler,
we would be happy to hear from you.
See the instructions for the tax return
with which this form is filed.

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,
dormitories, & workers' camps
721210 RV (recreational vehicle) parks
& recreational camps
721100 Traveler accommodation
(including hotels, motels, & bed
& breakfast inns)
Food Services & Drinking Places
722514 Cafeterias & buffets
722410 Drinking places (alcoholic
beverages)
722511 Full-service restaurants
722513 Limited-service restaurants
722515 Snack & non-alcoholic beverage
bars
722300 Special food services (including
food service contractors &
caterers)

Administrative & Support and
Waste Management &
Remediation Services

Administrative & Support Services
561430 Business service centers
(including private mail centers
& copy shops)
561740 Carpet & upholstery cleaning
services
561440 Collection agencies
561450 Credit bureaus
561410 Document preparation services
561300 Employment services
561710 Exterminating & pest control
services
561210 Facilities support (management)
services
561600 Investigation & security services
561720 Janitorial services
561730 Landscaping services
561110 Office administrative services
561420 Telephone call centers
(including telephone answering
services & telemarketing
bureaus)
561500 Travel arrangement &
reservation services
561490 Other business support services
(including repossession services,
court reporting, & stenotype
services)
561790 Other services to buildings &
dwellings
561900 Other support services
(including packaging & labeling
services, & convention & trade
show organizers)
Waste Management & Remediation
Services
562000 Waste management &
remediation services

Agriculture, Forestry, Hunting,
& Fishing
112900

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

115310

six-digit codes are based on the North American
Industry Classification System (NAICS).
Select the category that best describes your
primary business activity (for example, Real Estate).
Then select the activity that best identifies the principal
source of your sales or receipts (for example, real
ginning, soil preparation,
planting, & cultivating)
Support activities for forestry

Educational Services
611000

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

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

Nonresidential building
construction
236100 Residential building
construction
Heavy and Civil Engineering
Construction
237310 Highway, street, & bridge
construction
237210 Land subdivision
237100 Utility system construction
237990 Other heavy & civil engineering
construction
Specialty Trade Contractors
238310 Drywall & insulation
contractors
238210 Electrical contractors
238350 Finish carpentry contractors
238330 Flooring contractors
238130 Framing carpentry contractors
238150 Glass & glazing contractors
238140 Masonry contractors
238320 Painting & wall covering
contractors
238220 Plumbing, heating & airconditioning contractors
238110 Poured concrete foundation &
structure contractors
238160 Roofing contractors
238170 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 (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
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

Information
511000

C-17

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.
325600 Soap, cleaning compound, &
toilet preparation mfg.
325900 Other chemical product &
preparation mfg.
Food Manufacturing
311110 Animal food mfg.
311800 Bakeries, tortilla, & dry pasta
mfg.
311500 Dairy product mfg.
311400 Fruit & vegetable preserving &
speciality food mfg.
311200 Grain & oilseed milling
311610 Animal slaughtering &
processing
311710 Seafood product preparation &
packaging
311300 Sugar & confectionery product
mfg.
311900 Other food mfg. (including
coffee, tea, flavorings, &
seasonings)
Leather & Allied Product
Manufacturing
316210 Footwear mfg. (including
leather, rubber, & plastics)
316110 Leather & hide tanning &
finishing

Principal Business or Professional Activity Codes (Continued)
316990

Other leather & allied product
mfg.
Nonmetallic Mineral Product
Manufacturing
327300 Cement & concrete product
mfg.
327100 Clay product & refractory mfg.
327210 Glass & glass product mfg.
327400 Lime & gypsum product mfg.
327900 Other nonmetallic mineral
product mfg.

Mining
212110
211120
212200
211130
212300
213110

Coal mining
Crude petroleum extraction
Metal ore mining
Natural gas extraction
Nonmetallic mineral mining &
quarrying
Support activities for mining

Other Services

Personal & Laundry Services
812111 Barber shops
812112 Beauty salons
812220 Cemeteries & crematories
812310 Coin-operated laundries &
drycleaners
812320 Drycleaning & laundry services
(except coin-operated)
(including laundry &
drycleaning drop-off & pickup
sites)
812210 Funeral homes & funeral
services
812330 Linen & uniform supply
812113 Nail salons
812930 Parking lots & garages
812910 Pet care (except veterinary)
services
812920 Photofinishing
812190 Other personal care services
(including diet & weight
reducing centers)
812990 All other personal services
Repair & Maintenance
811120 Automotive body, paint,
interior, & glass repair
811110 Automotive mechanical &
electrical repair & maintenance
811190 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
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
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 Consumer electronics &
appliances rental
532281 Formal wear & costume rental
532310 General rental centers
532283 Home health equipment rental
532284 Recreational goods rental
532282 Video tape & disc rental
532289 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 (including
audio, video, computer, &
camera 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, & 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
454110 Electronic shopping and
mail-order houses
454310 Fuel dealers (including heating
oil & liquefied petroleum)
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)

485210

481000
485510
484110
484120

425110

Transportation & Warehousing

C-18

Air transportation
Charter bus industry
General freight trucking, local
General freight trucking, long
distance

Interurban & rural bus
transportation
486000 Pipeline transportation
482110 Rail transportation
487000 Scenic & sightseeing
transportation
485410 School & employee bus
transportation
484200 Specialized freight trucking
(including household moving
vans)
485300 Taxi, limousine, & ridesharing
service
485110 Urban transit systems
483000 Water transportation
485990 Other transit & ground
passenger transportation
488000 Support activities for
transportation (including motor
vehicle towing)
Couriers & Messengers
492000 Couriers & messengers
Warehousing & Storage Facilities
493100 Warehousing & storage (except
leases of miniwarehouses &
self-storage units)

Utilities
221000

Utilities

Wholesale Trade
Merchant Wholesalers, Durable Goods
423200 Furniture & home furnishing
423700 Hardware, & plumbing &
heating equipment & supplies
423600 Household appliances &
electrical & electronic goods
423940 Jewelry, watch, precious stone,
& precious metals
423300 Lumber & other construction
materials
423800 Machinery, equipment, &
supplies
423500 Metal & mineral (except
petroleum)
423100 Motor vehicle & motor vehicle
parts & supplies
423400 Professional & commercial
equipment & supplies
423930 Recyclable materials
423910 Sporting & recreational goods &
supplies
423920 Toy & hobby goods & supplies
423990 Other miscellaneous durable
goods
Merchant Wholesalers, Nondurable
Goods
424300 Apparel, piece goods, & notions
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
425120
999999

Business to business electronic
markets
Wholesale trade agents &
brokers
Unclassified establishments
(unable to classify)