Instructions for IRS Form 1040 Schedule C - Profit or Loss From Business (Sole Proprietorship) 2018

November 16, 2018 "Instructions For Irs Form 1040 Schedule C - Profit Or Loss From Business (sole Proprietorship)" contain the latest filing requirements for the IRS-issued Form 1040. Download your copy of the instructions by clicking the link below.

IRS Form 1040 is tax form released and collected by the Internal Revenue Service of the United States.

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Department of the Treasury
Internal Revenue Service
2018 Instructions for Schedule C
Profit or Loss
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
From Business
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 activi-
ty, 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 em-
ployee, (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 de-
tails.
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
461 and its instructions for details on the
information about deducting business
Revenue Code unless otherwise noted.
excess business loss limitation.
meal expenses.
Deduction for qualified business in-
Expired employment credits. At the
Future Developments
come. For tax years beginning after
time these instructions went to print, the
2017, you may be entitled to a deduction
empowerment zone employment credit
For the latest information about devel-
of up to 20% of your qualified business
and the Indian employment credit had
opments related to Schedule C and its
income from your qualified trade or
expired. If extended for 2018, claiming
instructions, such as legislation enacted
businesses plus 20% of the aggregate
these credits could affect the amount
after they were published, go to
IRS.gov/
amount of qualified real estate invest-
you can deduct on line 26. To find out if
ScheduleC.
ment trust (REIT) dividends and quali-
legislation extended these credits, go to
What's New
fied publicly traded partnership income.
IRS.gov/ScheduleC.
The deduction is subject to various limi-
Standard mileage rate. The business
Small business taxpayers. For tax
tations, such as limitations based on the
standard mileage rate for 2018 increased
years beginning after 2017, more
small
type of your trade or business, your tax-
to 54.5 cents per mile.
business taxpayers
(defined later in Part
able income, the amount of W-2 wages
III) may qualify to use the cash method
Reminders
paid with respect to the qualified trade
of accounting and be exempt from capi-
or business, and the unadjusted basis of
talizing certain expenses under section
qualified property held by your trade or
Small Business and Self-Employed
263A. In addition, small business tax-
business. You will claim this deduction
(SB/SE) Tax Center. Do you need help
payers may not be required to account
on Form 1040, not on Schedule C. Un-
with a tax issue or preparing your return,
for inventories under section 471 and are
like other deductions, this deduction can
or do you need a free publication or
not subject to the business interest ex-
be taken in addition to the standard or
form? SB/SE serves taxpayers who file
pense limitation.
itemized deductions. For more informa-
Form 1040, Schedules C, E, F, or Form
tion, see the Instructions for Form 1040
2106, as well as small business taxpay-
Excess business loss limitation. If you
and Pub. 535.
ers with assets under $10 million. For
report a loss on line 31 of your Sched-
additional information, visit the Small
ule C (Form 1040), you may be subject
Business interest expense limitation.
Business and Self-Employed Tax Center
to a new business loss limitation. The
For tax years beginning after 2017, your
at IRS.gov/SmallBiz.
disallowed loss resulting from this new
business interest expense deduction may
limitation will not be reflected on
be limited. See
Limitation on business
Sharing Economy Tax Center. The
line 31 of your Schedule C. Instead, use
interest
under Lines 16a and 16b, later,
sharing (or on-demand, gig, or access)
the new Form 461 to determine the
for more information.
economy refers to an emerging area of
amount of your excess business loss,
activity that involves people using tech-
Deductions for business meal and en-
which will be included as income on
nology advancements to arrange transac-
tertainment expenses. You can no lon-
Schedule 1 (Form 1040), line 21. Any
tions that generate revenue from sharing
ger deduct entertainment expenses. You
disallowed loss resulting from this limi-
assets or providing services upon re-
may still deduct 50% of your business
tation will be treated as a net operating
quest. Visit
IRS.gov/Sharing
to get more
meal expenses that are not entertainment
loss that must be carried forward and de-
information about the tax consequences
expenses. See
Line
24b, later, for more
ducted in a subsequent year. See Form
of participating in the sharing economy.
C-1
Nov 16, 2018
Cat. No. 24329W
Department of the Treasury
Internal Revenue Service
2018 Instructions for Schedule C
Profit or Loss
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
From Business
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 activi-
ty, 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 em-
ployee, (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 de-
tails.
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
461 and its instructions for details on the
information about deducting business
Revenue Code unless otherwise noted.
excess business loss limitation.
meal expenses.
Deduction for qualified business in-
Expired employment credits. At the
Future Developments
come. For tax years beginning after
time these instructions went to print, the
2017, you may be entitled to a deduction
empowerment zone employment credit
For the latest information about devel-
of up to 20% of your qualified business
and the Indian employment credit had
opments related to Schedule C and its
income from your qualified trade or
expired. If extended for 2018, claiming
instructions, such as legislation enacted
businesses plus 20% of the aggregate
these credits could affect the amount
after they were published, go to
IRS.gov/
amount of qualified real estate invest-
you can deduct on line 26. To find out if
ScheduleC.
ment trust (REIT) dividends and quali-
legislation extended these credits, go to
What's New
fied publicly traded partnership income.
IRS.gov/ScheduleC.
The deduction is subject to various limi-
Standard mileage rate. The business
Small business taxpayers. For tax
tations, such as limitations based on the
standard mileage rate for 2018 increased
years beginning after 2017, more
small
type of your trade or business, your tax-
to 54.5 cents per mile.
business taxpayers
(defined later in Part
able income, the amount of W-2 wages
III) may qualify to use the cash method
Reminders
paid with respect to the qualified trade
of accounting and be exempt from capi-
or business, and the unadjusted basis of
talizing certain expenses under section
qualified property held by your trade or
Small Business and Self-Employed
263A. In addition, small business tax-
business. You will claim this deduction
(SB/SE) Tax Center. Do you need help
payers may not be required to account
on Form 1040, not on Schedule C. Un-
with a tax issue or preparing your return,
for inventories under section 471 and are
like other deductions, this deduction can
or do you need a free publication or
not subject to the business interest ex-
be taken in addition to the standard or
form? SB/SE serves taxpayers who file
pense limitation.
itemized deductions. For more informa-
Form 1040, Schedules C, E, F, or Form
tion, see the Instructions for Form 1040
2106, as well as small business taxpay-
Excess business loss limitation. If you
and Pub. 535.
ers with assets under $10 million. For
report a loss on line 31 of your Sched-
additional information, visit the Small
ule C (Form 1040), you may be subject
Business interest expense limitation.
Business and Self-Employed Tax Center
to a new business loss limitation. The
For tax years beginning after 2017, your
at IRS.gov/SmallBiz.
disallowed loss resulting from this new
business interest expense deduction may
limitation will not be reflected on
be limited. See
Limitation on business
Sharing Economy Tax Center. The
line 31 of your Schedule C. Instead, use
interest
under Lines 16a and 16b, later,
sharing (or on-demand, gig, or access)
the new Form 461 to determine the
for more information.
economy refers to an emerging area of
amount of your excess business loss,
activity that involves people using tech-
Deductions for business meal and en-
which will be included as income on
nology advancements to arrange transac-
tertainment expenses. You can no lon-
Schedule 1 (Form 1040), line 21. Any
tions that generate revenue from sharing
ger deduct entertainment expenses. You
disallowed loss resulting from this limi-
assets or providing services upon re-
may still deduct 50% of your business
tation will be treated as a net operating
quest. Visit
IRS.gov/Sharing
to get more
meal expenses that are not entertainment
loss that must be carried forward and de-
information about the tax consequences
expenses. See
Line
24b, later, for more
ducted in a subsequent year. See Form
of participating in the sharing economy.
C-1
Nov 16, 2018
Cat. No. 24329W
General
You and your spouse wholly own
Single-member limited liability com-
the unincorporated business as commun-
pany (LLC). Generally, a single-mem-
Instructions
ity property and you treat the business as
ber domestic LLC is not treated as a sep-
a sole proprietorship. See
Community
arate entity for federal income tax
Other Schedules and Forms
Income, later.
purposes. If you are the sole member of
Otherwise, use Form 1065. See Pub. 541
You May Have To File
a domestic LLC, file Schedule C or
for information about partnerships.
C-EZ (or Schedule E or F, if applicable)
Schedule A (Form 1040) to deduct
unless you have elected to treat the do-
interest, taxes, and casualty losses not
Qualified Joint Venture
mestic LLC as a corporation. See Form
related to your business.
8832 for details on making this election
You and your spouse can elect to treat
Schedule E (Form 1040) to report
and for information about the tax treat-
an unincorporated business as a quali-
rental real estate and royalty income or
ment of a foreign LLC.
fied joint venture instead of a partner-
(loss) that is not subject to
ship if you:
Single-member limited liability com-
self-employment tax.
Each materially participate in the
panies (LLCs) with employees. A sin-
Schedule F (Form 1040) to report
business (see
Material
participation, lat-
gle-member LLC must file employment
profit or (loss) from farming.
tax returns using the LLC's name and
er, in the instructions for line G),
Schedule J (Form 1040) to figure
Are the only owners of the busi-
employer identification number (EIN)
your tax by averaging your farming or
ness, and
rather than the owner's name and EIN,
fishing income over the previous 3
File a joint return for the tax year.
even if the LLC is not treated as a sepa-
years. Doing so may reduce your tax.
rate entity for federal income tax purpo-
Schedule SE (Form 1040) to pay
Making the election will allow you to
ses.
self-employment tax on income from
avoid the complexity of Form 1065, but
any trade or business.
still give each of you credit for social se-
Heavy highway vehicle use tax. If you
Form 461 to report your excess
use certain highway trucks, truck-trail-
curity earnings on which retirement ben-
business loss.
ers, tractor-trailers, or buses in your
efits, disability benefits, survivor bene-
Form 3800 to claim any of the
fits, and insurance (Medicare) benefits
trade or business, you may have to pay a
general business credits.
are based. In most cases, this election
federal highway motor vehicle use tax.
Form 4562 to claim depreciation
will not increase the total tax owed on
See the Instructions for Form 2290 to
(including the special allowance) on
the joint return.
find out if you must pay this tax and vis-
assets placed in service in 2018, to claim
it
IRS.gov/Trucker
for the most recent
Jointly owned property. You and your
amortization that began in 2018, to
developments.
spouse must operate a business to make
make an election under section 179 to
Information returns. You may have to
this election. Do not make the election
expense certain property, or to report
for jointly owned property that is not a
file information returns for wages paid
information on listed property.
trade or business.
to employees, certain payments of fees
Form 4684 to report a casualty or
and other nonemployee compensation,
Making the election. To make this
theft gain or (loss) involving property
interest, rents, royalties, real estate trans-
election, divide all items of income,
used in your trade or business or
actions, annuities, and pensions. See
gain, loss, deduction, and credit attribut-
income-producing property.
Line
I, later, and the 2018 General In-
able to the business between you and
Form 4797 to report sales,
structions for Certain Information Re-
your spouse based on your interests in
exchanges, and involuntary conversions
turns for details and other payments that
the business. Each of you must file a
(not from a casualty or theft) of trade or
may require you to file a Form 1099.
separate Schedule C, C-EZ, or F. Enter
business property.
your share of the applicable income, de-
If you received cash of more than
Form 6198 to apply a limitation to
duction or (loss), on the appropriate
$10,000 in one or more related transac-
your loss if you have a business loss and
lines of your separate Schedule C, C-EZ,
tions in your trade or business, you may
you have amounts invested in the
have to file Form 8300. For details, see
or F. Each of you also may need to file a
business for which you are not at risk.
Pub. 1544.
separate Schedule SE to pay self-em-
Form 8582 to apply a limitation to
ployment tax. If the business was taxed
Business Owned and
your loss from passive activities.
as a partnership before you made the
Form 8594 to report certain
Operated by Spouses
election, the partnership will be treated
purchases or sales of groups of assets
as terminating at the end of the preced-
Generally, if you and your spouse joint-
that constitute a trade or business.
ing tax year. For information on how to
ly own and operate an unincorporated
Form 8824 to report like-kind
report the termination of the partnership,
business and share in the profits and los-
exchanges.
see Pub. 541.
ses, you are partners in a partnership,
Form 8829 to claim actual
whether or not you have a formal part-
Revoking the election. The election
expenses for business use of your home.
can be revoked only with the permission
nership agreement. You generally have
Form 8990 to determine whether
to file Form 1065 instead of Schedule C
of the IRS. However, the election re-
your business interest deduction is
or C-EZ for your joint business activity;
mains in effect only for as long as you
limited.
however, you may not have to file Form
and your spouse continue to meet the re-
Also, see the Qualified Business Income
1065 if either of the following applies.
quirements to make the election. If you
Deduction Worksheet in the Instructions
You and your spouse elect to be
and your spouse fail to meet the require-
for Form 1040 or Pub. 535 to figure a
ments for any year, you will need to
treated as a qualified joint venture. See
deduction for qualified business income.
make a new election to be treated as a
Qualified Joint Venture
next.
C-2
Reportable Transaction
qualified joint venture in any future
year.
Disclosure Statement
Specific
Employer
identification
number
Instructions
Use Form 8886 to disclose information
(EIN). You and your spouse do not
for each reportable transaction in which
need to obtain an EIN to make the elec-
you participated. Form 8886 must be
Filers of Form 1041. Do not complete
tion. But you may need an EIN to file
filed for each tax year that your federal
the block labeled “Social security num-
other returns, such as employment or ex-
income tax liability is affected by your
ber (SSN).” Instead, enter the employer
cise tax returns. To apply for an EIN,
participation in the transaction. You may
identification number (EIN) issued to
see the Instructions for Form SS-4.
have to pay a penalty if you are required
the estate or trust on line D.
Rental real estate business. If you and
to file Form 8886 but do not do so. You
your spouse make the election for your
Line A
also may have to pay interest and penal-
rental real estate business, you must
ties on any reportable transaction under-
each report your share of income and
Describe the business or professional ac-
statements. The following are reportable
deductions on Schedule E. Rental real
tivity that provided your principal
transactions.
estate income generally is not included
source of income reported on line 1. If
Any listed transaction that is the
in net earnings from self-employment
you owned more than one business, you
same as or substantially similar to tax
subject to self-employment tax and gen-
must complete a separate Schedule C for
avoidance transactions identified by the
erally is subject to the passive loss limi-
each business. Give the general field or
IRS.
tation rules. Electing qualified joint ven-
activity and the type of product or serv-
Any transaction offered to you or a
ture status does not alter the application
ice. If your general field or activity is
related party under conditions of confi-
of the self-employment tax or the pas-
wholesale or retail trade, or services
dentiality for which you paid an advisor
sive loss limitation rules.
connected with production services
a fee of at least $50,000.
(mining, construction, or manufactur-
More information. For more informa-
Certain transactions for which you
ing), also give the type of customer or
tion on qualified joint ventures, go to
or a related party have contractual pro-
client. For example, “wholesale sale of
IRS.gov/QJV.
tection against disallowance of the tax
hardware to retailers” or “appraisal of
benefits.
real estate for lending institutions.”
Community Income
Certain transactions resulting in a
loss of at least $2 million in any single
If you and your spouse wholly own an
Line B
tax year or $4 million in any combina-
unincorporated business as community
tion of tax years. (At least $50,000 for a
Enter on line B the six-digit code from
property under the community property
single tax year if the loss arose from a
the
Principal Business or Professional
laws of a state, foreign country, or U.S.
foreign currency transaction defined in
Activity Codes
chart at the end of these
possession, you can treat your wholly
section 988(c)(1), whether or not the
instructions.
owned, unincorporated business as a
loss flows through from an S corpora-
sole proprietorship, instead of a partner-
tion or partnership.)
Line D
ship. Any change in your reporting posi-
Certain transactions of interest en-
tion will be treated as a conversion of
tered into after November 1, 2006, that
Enter on line D the employer identifica-
the entity.
are the same or substantially similar to
tion number (EIN) that was issued to
Report your income and deductions
one of the types of transactions that the
you on Form SS-4. Do not enter your
as follows.
IRS has identified by published guid-
SSN on this line. Do not enter another
If only one spouse participates in
ance as a transaction of interest.
taxpayer's EIN (for example, from any
the business, all of the income from that
Forms 1099-MISC that you received). If
See the Instructions for Form 8886
business is the self-employment earn-
you do not have an EIN, leave line D
for more details.
ings of the spouse who carried on the
blank.
Capital Construction Fund
business.
You need an EIN only if you have a
If both spouses participate, the in-
Do not claim on Schedule C or C-EZ the
qualified retirement plan or are required
come and deductions are allocated to the
deduction for amounts contributed to a
to file employment, excise, alcohol, to-
spouses based on their distributive
capital construction fund set up under
bacco, or firearms returns, or are a payer
shares.
chapter 535 of title 46 of the United
of gambling winnings. If you need an
If either or both spouses are part-
States Code. Instead, reduce the amount
EIN, see the Instructions for Form SS-4.
ners in a partnership, see Pub. 541.
you would otherwise enter on Form
If both spouses elected to treat the
Single-member LLCs. If you are the
1040, line 10, by the amount of the de-
business as a qualifying joint venture,
sole owner of an LLC that is not treated
duction. Next to line 10, enter “CCF”
see
Qualified Joint
Venture, earlier.
as a separate entity for federal income
and the amount of the deduction. For de-
tax purposes, enter on line D the EIN
States with community property laws
tails, see Pub. 595.
that was issued to the LLC (in the LLC's
include Arizona, California, Idaho, Lou-
Additional Information
legal name) for a qualified retirement
isiana, Nevada, New Mexico, Texas,
plan, to file employment, excise, alco-
Washington, and Wisconsin. See Pub.
See Pub. 334 for more information for
hol, tobacco, or firearms returns, or as a
555 for more information about com-
small businesses.
payer of gambling winnings. If you do
munity property laws.
not have such an EIN, leave line D
blank.
C-3
into account over a period of 4 years. In-
Studying and reviewing financial
Line E
clude any net positive section 481(a) ad-
statements or reports on the activity,
justments on line 6. If the net section
Preparing or compiling summaries
Enter your business address. Show a
481(a) adjustment is negative, report it
or analyses of the finances or operations
street address instead of a box number.
in Part V.
of the activity for your own use, and
Include the suite or room number, if
Monitoring the finances or opera-
any. If you conducted the business from
More information. For more informa-
tions of the activity in a nonmanagerial
your home located at the address shown
tion about changing your accounting
capacity.
on Form 1040, page 1, you do not have
method and the section 481(a) adjust-
to complete this line.
ment, see the Instructions for Form
Participation by your spouse during
3115. Additional information also is
the tax year in an activity you own can
Line F
available in various revenue procedures.
be counted as your participation in the
See Rev. Proc. 2015-13 for the general
activity. This rule applies even if your
Generally, you can use the cash method,
procedures
to
obtain
the
advance
spouse did not own an interest in the ac-
an accrual method, or any other method
(non-automatic) consent or automatic
tivity and whether or not you and your
permitted by the Internal Revenue Code.
consent of the Commissioner to change
spouse file a joint return. However, this
In all cases, the method used must clear-
a method of accounting. Rev. Proc.
rule does not apply for purposes of de-
ly reflect income. Unless you are a
small
2015-13 is available at
IRS.gov/irb/
termining whether you and your spouse
business taxpayer
(defined later in Part
2015-5_IRB#RP-2015-13.
See
Rev.
can elect to have your business treated
III), you must use an accrual method for
Proc. 2018-31 for a list of automatic
as a qualified joint venture instead of a
sales and purchases of inventory items.
changes, including a description of its
partnership (see
Qualified Joint
Venture,
Special rules apply to long-term con-
effect on prior lists of automatic
earlier).
tracts (see section 460 for details).
changes. Rev. Proc. 2018-31 is available
For purposes of the passive activity
at
IRS.gov/irb/
If you use the cash method, show all
rules, you materially participated in the
2018-22_IRB#RP-2018-31.
items of taxable income actually or con-
operation of this trade or business activi-
structively received during the year (in
ty during 2018 if you met any of the fol-
Line G
cash, property, or services). Income is
lowing seven tests.
constructively received when it is credi-
1. You participated in the activity
If your business activity was not a rental
ted to your account or set aside for you
for more than 500 hours during the tax
activity and you met any of the material
to use. Also, show amounts actually paid
year.
participation tests, explained next, or the
during the year for deductible expenses.
exception for oil and gas
applies, check
2. Your participation in the activity
However, if the payment of an expendi-
the “Yes” box. Otherwise, check the
for the tax year was substantially all of
ture creates an asset having a useful life
“No” box. If you check the “No” box,
the participation in the activity of all in-
that extends beyond 12 months or the
this activity is passive. If you have a loss
dividuals (including individuals who did
end of the next taxable year, it may not
from a passive activity, see
Limit on los-
not own any interest in the activity) for
be deductible or may be deductible only
ses, later. If you have a profit from the
the tax year.
in part for the year of the payment. See
rental of property to a nonpassive activi-
chapter 1 of Pub. 535.
3. You participated in the activity
ty, see Recharacterization of Passive In-
for more than 100 hours during the tax
come in Pub. 925 to find out how to re-
For amounts includible in income and
year, and you participated at least as
port the net income.
deductible as expense under an accrual
much as any other person for the tax
method, see Pub. 538.
year. This includes individuals who did
Material participation. For purposes
not own any interest in the activity.
of the seven material participation tests
To change your accounting method,
listed later, participation generally in-
4. The activity is a significant par-
you generally must file Form 3115. You
cludes any work you did in connection
ticipation activity for the tax year, and
also may have to make an adjustment to
with an activity if you owned an interest
you participated in all significant partici-
prevent amounts of income or expense
in the activity at the time you did the
from being duplicated or omitted. This
pation activities for more than 500 hours
work. The capacity in which you did the
during the year. An activity is a “signifi-
is called a section 481(a) adjustment.
work does not matter. However, work is
cant participation activity” if it involves
Example. You change to the cash
not treated as participation if it is work
the conduct of a trade or business, you
method of accounting and choose to ac-
that an owner would not customarily do
participated in the activity for more than
count for inventoriable items in the same
in the same type of activity and one of
100 hours during the tax year, and you
manner as non-incidental materials and
your main reasons for doing the work
did not materially participate under any
supplies. You accrued sales in 2017 for
was to avoid the disallowance of losses
of the material participation tests (other
which you received payment in 2018.
or credits from the activity under the
than this test 4).
You must report those sales in both
passive activity rules.
5. You materially participated in the
years as a result of changing your ac-
Work you did as an investor in an ac-
activity for any 5 of the prior 10 tax
counting method and must make a sec-
tivity is not treated as participation un-
years.
tion 481(a) adjustment to prevent dupli-
less you were directly involved in the
cation of income.
6. The activity is a personal service
day-to-day management or operations of
activity in which you materially partici-
A net negative section 481 adjust-
the activity. Work done as an investor
pated for any 3 prior tax years. A per-
ment is generally taken into account in
includes:
sonal service activity is an activity that
the year of change. A net positive sec-
involves performing personal services in
tion 481(a) adjustment is generally taken
C-4
the fields of health, law, engineering, ar-
total amounts that were reported in
Line I
chitecture, accounting, actuarial science,
box 7 of Forms 1099-MISC are more
performing arts, consulting, or any other
than the total you are reporting on line 1,
If you made any payment in 2018 that
trade or business in which capital is not
attach a statement explaining the differ-
would require you to file any Forms
a material income-producing factor.
ence.
1099, check the “Yes” box. Otherwise,
check the “No” box.
7. Based on all the facts and circum-
Statutory employees. If you received a
stances, you participated in the activity
Form W-2 and the "Statutory employee"
You may have to file information re-
on a regular, continuous, and substantial
box in box 13 of that form was checked,
turns for wages paid to employees, cer-
basis for more than 100 hours during the
report your income and expenses related
tain payments of fees and other nonem-
tax year.Your participation in managing
to that income on Schedule C or C-EZ.
ployee compensation, interest, rents,
the activity does not count in determin-
Enter your statutory employee income
royalties, real estate transactions, annui-
ing if you meet this test if any person
from box 1 of Form W-2 on line 1 of
ties, and pensions. You also may have to
(except you) (a) received compensation
Schedule C or C-EZ and check the box
file an information return if you sold
for performing management services in
on that line. Social security and Medi-
$5,000 or more of consumer products to
connection with the activity, or (b) spent
care tax should have been withheld from
a person on a buy-sell, deposit-commis-
more hours during the tax year than you
your earnings; as a result, you do not
sion, or other similar basis for resale.
spent performing management services
owe self-employment tax on these earn-
The Guide to Information Re-
in connection with the activity (regard-
ings.
Statutory
employees
include
turns in the 2018 General In-
less of whether the person was compen-
TIP
full-time life insurance agents, certain
structions for Certain Informa-
sated for the services).
agent or commission drivers and travel-
tion Returns identifies which Forms
ing salespersons, and certain homework-
Rental of personal property. General-
1099 must be filed, the amounts to re-
ers.
ly, a rental activity (such as long-term
port, and the due dates for the required
If you had both self-employment in-
equipment leasing) is a passive activity
Forms 1099.
come and statutory employee income,
even if you materially participated in the
you must file two Schedules C. You
activity. However, if you met any of the
cannot use Schedule C-EZ or combine
five exceptions listed under Rental Ac-
Part I. Income
these amounts on a single Schedule C.
tivities in the Instructions for Form
Qualified joint ventures should
8582, the rental of the property is not
!
report rental real estate income
treated as a rental activity and the mate-
Except as otherwise provided in the In-
not subject to self-employment
rial participation rules explained earlier
ternal Revenue Code, gross income in-
CAUTION
tax on Schedule E. See
Qualified Joint
apply.
cludes income from whatever source de-
Venture, earlier, and the Instructions for
rived. In certain circumstances, howev-
Exception for oil and gas. If you are
Schedule E.
er, gross income does not include extra-
filing Schedule C to report income and
territorial income that is qualifying for-
deductions from an oil or gas well in
eign trade income. Use Form 8873 to
Installment sales. Generally, the in-
which you own a working interest di-
figure the extraterritorial income exclu-
stallment method cannot be used to re-
rectly or through an entity that does not
sion. Report it on Schedule C as ex-
port income from the sale of (a) personal
limit your liability, check the “Yes” box.
plained in the Instructions for Form
property regularly sold under the install-
The activity of owning a working inter-
8873.
ment method, or (b) real property held
est is not a passive activity, regardless of
for resale to customers. But the install-
your participation.
If you were a debtor in a chapter 11
ment method can be used to report in-
Limit on losses. Your business activity
bankruptcy case during 2018, see Chap-
come from sales of certain residential
loss may be limited if you checked the
ter 11 Bankruptcy Cases in the Instruc-
lots and timeshares if you elect to pay
“No” box on line G. In addition, your
tions for Form 1040 (under Income) and
interest on the tax due on that income af-
rental activity loss may be limited even
the Instructions for Schedule SE.
ter the year of sale. See section 453(l)(2)
if you materially participated. In gener-
(B) for details. If you make this election,
Income you report on Sched-
al, a business activity in which you do
include the interest in the total on
ule C may be qualified business
TIP
not materially participate or a rental ac-
Schedule 4 (Form 1040), line 62. Check
income and entitle you to a de-
tivity is a passive activity and you have
box c and enter the amount of interest
duction on Form 1040, line 9. Be sure to
to use Form 8582 to apply a limitation
and “453(l)(3)” on the line next to that
use the Qualified Business Income De-
that may reduce the loss, if any, that you
box.
duction Worksheet in the Instructions
may enter on Schedule C, line 31. For
for Form 1040 or Pub. 535 to figure
If you use the installment method, at-
details, see Pub. 925.
your deduction, if any. Also, see Pub.
tach a statement to your return. Show
535 for more information about this de-
Line H
separately for 2018 and the 3 preceding
duction.
years: gross sales, cost of goods sold,
If you started or acquired this business
gross profit, percentage of gross profit to
in 2018, check the box on line H. Also,
Line 1
gross sales, amounts collected, and gross
check the box if you are reopening or re-
profit on amounts collected.
starting this business after temporarily
Enter gross receipts from your trade or
closing it, and you did not file a 2017
business. Include amounts you received
Schedule C or C-EZ for this business.
in your trade or business that were prop-
erly shown on Forms 1099-MISC. If the
C-5

Download Instructions for IRS Form 1040 Schedule C - Profit or Loss From Business (Sole Proprietorship) 2018

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