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

This document contains official instructions for IRS Form 1040 Schedule C and IRS Form 1040-SR Schedule C. Both forms are released and collected by the Internal Revenue Service (IRS), a subdivision of the U.S. Department of the Treasury. An up-to-date fillable IRS Form 1040 (1040-SR) Schedule C is available for download through this link.

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

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Department of the Treasury
Internal Revenue Service
2019 Instructions for Schedule C
Profit or Loss
Use Schedule C (Form 1040 or 1040-SR) to report income or (loss) from a business
you operated or a profession you practiced as a sole proprietor. An activity qualifies as
From Business
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, not-for-profit 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 or 1040-SR), line 8, or Form 1040-NR, 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.
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
claim them on your 2019 return. Claim-
do so. See
IRS.gov/Form1040X
for more
Revenue Code unless otherwise noted.
ing any of these credits may affect the
information about amending a tax re-
amount you can deduct on line 26.
turn.
Future Developments
If you are eligible to claim any of
Reminders
these credits for tax year 2018, you will
For the latest information about devel-
need to file an amended return, Form
opments related to Schedule C and its
Small Business and Self-Employed
1040-X,
to
do
so.
See
IRS.gov/
instructions, such as legislation enacted
(SB/SE) Tax Center. Do you need help
after they were published, go to
IRS.gov/
Form1040X
for more information about
with a tax issue or preparing your return,
ScheduleC.
amending a tax return.
or do you need a free publication or
Fuel credits. Recent legislation exten-
form? SB/SE serves taxpayers who file
What's New
ded to 2019 (and retroactively to 2018)
Form 1040, Form 1040-SR, Schedules
the biofuel producer credit (Form 6478)
C, E, F, or Form 2106, as well as small
Gross receipts test for determining
and the biodiesel and renewable diesel
business taxpayers with assets under $10
small business taxpayers. For 2019,
fuels credit (Form 8864). See each credit
million. For additional information, visit
the maximum average annual gross re-
form for more information. If you are el-
the Small Business and Self-Employed
ceipts of a small business taxpayer in-
igible for one or more of these credits in
Tax Center at IRS.gov/SmallBiz.
creased from $25 million to $26 million.
2019, you can claim them on your 2019
Sharing Economy Tax Center. The
A small business taxpayer (defined later
return. Claiming any of these credits
in Part III) may qualify to use the cash
sharing (or on-demand, gig, or access)
may require that you report additional
method of accounting, may be exempt
economy refers to an emerging area of
business income on line 6.
activity that involves people using tech-
from capitalizing certain expenses under
If you are eligible to claim any of
nology advancements to arrange transac-
section 263A, may not need to account
these credits for tax year 2018, you will
tions that generate revenue from sharing
for inventories under section 471(a), and
need to file an amended return, Form
may not be subject to the business inter-
assets or providing services upon re-
1040-X,
to
do
so.
See
IRS.gov/
est expense limitation under section
quest. Visit
IRS.gov/Sharing
to get more
Form1040X
for more information about
163(j).
information about the tax consequences
amending a tax return.
of participating in the sharing economy.
Standard mileage rate. The business
Film and television and live theatrical
standard mileage rate for 2019 increased
General
production expenses. Recent legisla-
to 58 cents per mile.
tion extended to 2019 (and retroactively
Instructions
Employment credits. Recent legisla-
to 2018) the election to deduct costs of
tion extended to 2019 (and retroactively
certain qualified film and television pro-
Other Schedules and Forms
to 2018) the empowerment zone em-
ductions or qualified live theatrical pro-
ployment credit (Form 8844), the Indian
You May Have To File
ductions in Part V. If you are eligible to
employment credit (Form 8845), and the
make this election in 2019, you can
Schedule A (Form 1040 or
employee retention credit for employers
make it on your 2019 return.
1040-SR) to deduct interest, taxes, and
affected by qualified disasters (Form
If you are eligible to make this elec-
casualty losses not related to your
5884-A). See each credit form for more
tion for tax year 2018, you will need to
business.
information. If you are eligible for one
file an amended return, Form 1040-X, to
or more of these credits in 2019, you can
C-1
Jan 17, 2020
Cat. No. 24329W
Department of the Treasury
Internal Revenue Service
2019 Instructions for Schedule C
Profit or Loss
Use Schedule C (Form 1040 or 1040-SR) to report income or (loss) from a business
you operated or a profession you practiced as a sole proprietor. An activity qualifies as
From Business
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, not-for-profit 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 or 1040-SR), line 8, or Form 1040-NR, 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.
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
claim them on your 2019 return. Claim-
do so. See
IRS.gov/Form1040X
for more
Revenue Code unless otherwise noted.
ing any of these credits may affect the
information about amending a tax re-
amount you can deduct on line 26.
turn.
Future Developments
If you are eligible to claim any of
Reminders
these credits for tax year 2018, you will
For the latest information about devel-
need to file an amended return, Form
opments related to Schedule C and its
Small Business and Self-Employed
1040-X,
to
do
so.
See
IRS.gov/
instructions, such as legislation enacted
(SB/SE) Tax Center. Do you need help
after they were published, go to
IRS.gov/
Form1040X
for more information about
with a tax issue or preparing your return,
ScheduleC.
amending a tax return.
or do you need a free publication or
Fuel credits. Recent legislation exten-
form? SB/SE serves taxpayers who file
What's New
ded to 2019 (and retroactively to 2018)
Form 1040, Form 1040-SR, Schedules
the biofuel producer credit (Form 6478)
C, E, F, or Form 2106, as well as small
Gross receipts test for determining
and the biodiesel and renewable diesel
business taxpayers with assets under $10
small business taxpayers. For 2019,
fuels credit (Form 8864). See each credit
million. For additional information, visit
the maximum average annual gross re-
form for more information. If you are el-
the Small Business and Self-Employed
ceipts of a small business taxpayer in-
igible for one or more of these credits in
Tax Center at IRS.gov/SmallBiz.
creased from $25 million to $26 million.
2019, you can claim them on your 2019
Sharing Economy Tax Center. The
A small business taxpayer (defined later
return. Claiming any of these credits
in Part III) may qualify to use the cash
sharing (or on-demand, gig, or access)
may require that you report additional
method of accounting, may be exempt
economy refers to an emerging area of
business income on line 6.
activity that involves people using tech-
from capitalizing certain expenses under
If you are eligible to claim any of
nology advancements to arrange transac-
section 263A, may not need to account
these credits for tax year 2018, you will
tions that generate revenue from sharing
for inventories under section 471(a), and
need to file an amended return, Form
may not be subject to the business inter-
assets or providing services upon re-
1040-X,
to
do
so.
See
IRS.gov/
est expense limitation under section
quest. Visit
IRS.gov/Sharing
to get more
Form1040X
for more information about
163(j).
information about the tax consequences
amending a tax return.
of participating in the sharing economy.
Standard mileage rate. The business
Film and television and live theatrical
standard mileage rate for 2019 increased
General
production expenses. Recent legisla-
to 58 cents per mile.
tion extended to 2019 (and retroactively
Instructions
Employment credits. Recent legisla-
to 2018) the election to deduct costs of
tion extended to 2019 (and retroactively
certain qualified film and television pro-
Other Schedules and Forms
to 2018) the empowerment zone em-
ductions or qualified live theatrical pro-
ployment credit (Form 8844), the Indian
You May Have To File
ductions in Part V. If you are eligible to
employment credit (Form 8845), and the
make this election in 2019, you can
Schedule A (Form 1040 or
employee retention credit for employers
make it on your 2019 return.
1040-SR) to deduct interest, taxes, and
affected by qualified disasters (Form
If you are eligible to make this elec-
casualty losses not related to your
5884-A). See each credit form for more
tion for tax year 2018, you will need to
business.
information. If you are eligible for one
file an amended return, Form 1040-X, to
or more of these credits in 2019, you can
C-1
Jan 17, 2020
Cat. No. 24329W
Schedule E (Form 1040 or
you have elected to treat the domestic
Otherwise, use Form 1065. See Pub. 541
1040-SR) to report rental real estate and
LLC as a corporation. See Form 8832
for information about partnerships.
royalty income or (loss) that is not
for details on making this election and
Qualified Joint Venture
subject to self-employment tax.
for information about the tax treatment
Schedule F (Form 1040 or
of a foreign LLC.
You and your spouse can elect to treat
1040-SR) to report profit or (loss) from
Single-member limited liability com-
an unincorporated business as a quali-
farming.
panies (LLCs) with employees. A sin-
fied joint venture instead of a partner-
Schedule J (Form 1040 or
gle-member LLC must file employment
ship if you:
1040-SR) to figure your tax by
tax returns using the LLC's name and
Each materially participate in the
averaging your farming or fishing
employer identification number (EIN)
business (see
Material
participation, lat-
income over the previous 3 years. Doing
rather than the owner's name and EIN,
er, in the instructions for line G),
so may reduce your tax.
even if the LLC is not treated as a sepa-
Are the only owners of the busi-
Schedule SE (Form 1040 or
rate entity for federal income tax purpo-
ness, and
1040-SR) to pay self-employment tax on
ses.
File a joint return for the tax year.
income from any trade or business.
Heavy highway vehicle use tax. If you
Making the election will allow you to
Form 461 to report an excess
use certain highway trucks, truck-trail-
avoid the complexity of Form 1065, but
business loss.
ers, tractor-trailers, or buses in your
still give each of you credit for social se-
Form 3800 to claim any of the
trade or business, you may have to pay a
curity earnings on which retirement ben-
general business credits.
federal highway motor vehicle use tax.
efits, disability benefits, survivor bene-
Form 4562 to claim depreciation
See the Instructions for Form 2290 to
fits, and insurance (Medicare) benefits
(including the special allowance) on
find out if you must pay this tax and vis-
are based. In most cases, this election
assets placed in service in 2019, to claim
it
IRS.gov/Trucker
for the most recent
will not increase the total tax owed on
amortization that began in 2019, to
developments.
the joint return.
make an election under section 179 to
Information returns. You may have to
expense certain property, or to report
Jointly owned property. You and your
file information returns for wages paid
information on listed property.
spouse must operate a business to make
to employees, certain payments of fees
Form 4684 to report a casualty or
this election. Do not make the election
and other nonemployee compensation,
theft gain or (loss) involving property
for jointly owned property that is not a
interest, rents, royalties, real estate trans-
used in your trade or business or
trade or business.
actions, annuities, and pensions. See
income-producing property.
Only businesses that are owned
Line
I, later, and the 2019 General In-
Form 4797 to report sales,
!
and operated by spouses as
structions for Certain Information Re-
exchanges, and involuntary conversions
co-owners (and not in the name
turns for details and other payments that
CAUTION
(not from a casualty or theft) of trade or
of a state law entity) qualify for the elec-
may require you to file a Form 1099.
business property.
tion. Thus, a business owned and oper-
Form 6198 to apply a limitation to
If you received cash of more than
ated by spouses through a limited liabil-
your loss if you have a business loss and
$10,000 in one or more related transac-
ity company (LLC) does not qualify for
you have amounts invested in the
tions in your trade or business, you may
the election of a qualified joint venture.
business for which you are not at risk.
have to file Form 8300. For details, see
Form 6252 to report income from
Pub. 1544.
Making the election. To make this
an installment agreement.
Business Owned and
election, divide all items of income,
Form 8582 to apply a limitation to
gain, loss, deduction, and credit attribut-
Operated by Spouses
your loss from passive activities.
able to the business between you and
Form 8594 to report certain
your spouse based on your interests in
Generally, if you and your spouse joint-
purchases or sales of groups of assets
the business. Each of you must file a
ly own and operate an unincorporated
that constitute a trade or business.
separate Schedule C or F. Enter your
business and share in the profits and los-
Form 8824 to report like-kind
share of the applicable income, deduc-
ses, you are partners in a partnership,
exchanges.
tion or (loss), on the appropriate lines of
whether or not you have a formal part-
Form 8829 to claim actual
your separate Schedule C or F. Each of
nership agreement. You generally have
expenses for business use of your home.
you also may need to file a separate
to file Form 1065 instead of Schedule C
Form 8990 to determine whether
Schedule SE to pay self-employment
for your joint business activity; howev-
your business interest deduction is
tax. If the business was taxed as a part-
er, you may not have to file Form 1065
limited.
nership before you made the election,
if either of the following applies.
Form 8995 or 8995-A to claim a
the partnership will be treated as termi-
You and your spouse elect to be
deduction for qualified business income.
nating at the end of the preceding tax
treated as a qualified joint venture. See
year. For information on how to report
Single-member limited liability com-
Qualified Joint Venture
next.
the termination of the partnership, see
pany (LLC). Generally, a single-mem-
You and your spouse wholly own
Pub. 541.
ber domestic LLC is not treated as a sep-
the unincorporated business as commun-
arate entity for federal income tax
ity property and you treat the business as
Revoking the election. The election
purposes. If you are the sole member of
a sole proprietorship. See
Community
can be revoked only with the permission
a domestic LLC, file Schedule C (or
Income, later.
of the IRS. However, the election re-
Schedule E or F, if applicable) unless
mains in effect only for as long as you
C-2
and your spouse continue to meet the re-
States with community property laws
“CCF” and the amount of the deduction.
quirements to make the election. If you
include Arizona, California, Idaho, Lou-
For details, see Pub. 595.
and your spouse fail to meet the require-
isiana, Nevada, New Mexico, Texas,
Additional Information
ments for any year, you will need to
Washington, and Wisconsin. See Pub.
See Pub. 334 for more information for
make a new election to be treated as a
555 for more information about com-
small businesses.
qualified joint venture in any future
munity property laws.
year.
Reportable Transaction
Employer
identification
number
Disclosure Statement
Specific
(EIN). You and your spouse do not
Instructions
Use Form 8886 to disclose information
need to obtain an EIN to make the elec-
tion. But you may need an EIN to file
for each reportable transaction in which
other returns, such as employment or ex-
you participated. Form 8886 must be
Filers of Form 1041. Do not complete
filed for each tax year that your federal
cise tax returns. To apply for an EIN,
the block labeled “Social security num-
income tax liability is affected by your
see the Instructions for Form SS-4 or
ber (SSN).” Instead, enter the employer
participation in the transaction. You may
visit IRS.gov/EIN.
identification number (EIN) issued to
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.
More information. For more informa-
(mining, construction, or manufactur-
Certain transactions for which you
tion on qualified joint ventures, go to
ing), also give the type of customer or
or a related party have contractual pro-
IRS.gov/QJV.
client. For example, “wholesale sale of
tection against disallowance of the tax
hardware to retailers” or “appraisal of
benefits.
Community Income
real estate for lending institutions.”
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
property under the community property
Enter on line B the six-digit code from
single tax year if the loss arose from a
laws of a state, foreign country, or U.S.
the
Principal Business or Professional
foreign currency transaction defined in
possession, you can treat your wholly
Activity Codes
chart at the end of these
section 988(c)(1), whether or not the
owned, unincorporated business as a
instructions.
loss flows through from an S corpora-
sole proprietorship, instead of a partner-
tion or partnership.)
ship. Any change in your reporting posi-
Line D
Certain transactions of interest en-
tion will be treated as a conversion of
tered into after November 1, 2006, that
the entity.
Enter on line D the employer identifica-
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
business is the self-employment earn-
See the Instructions for Form 8886
you do not have an EIN, leave line D
ings of the spouse who carried on the
for more details.
blank.
business.
Capital Construction Fund
If both spouses participate, the in-
You need an EIN only if you have a
come and deductions are allocated to the
Do not claim on Schedule C the deduc-
qualified retirement plan or are required
spouses based on their distributive
tion for amounts contributed to a capital
to file employment, excise, alcohol, to-
shares.
construction fund set up under chap-
bacco, or firearms returns, or are a payer
If either or both spouses are part-
ter 535 of title 46 of the United States
of gambling winnings. If you need an
ners in a partnership, see Pub. 541.
Code. Instead, reduce the amount you
EIN, see the Instructions for Form SS-4.
If both spouses elected to treat the
would otherwise enter on Form 1040 or
Single-member LLCs. If you are the
business as a qualifying joint venture,
1040-SR, line 11b, by the amount of the
sole owner of an LLC that is not treated
see
Qualified Joint
Venture, earlier.
deduction. Next to line 11b, enter
as a separate entity for federal income
tax purposes, enter on line D the EIN
C-3
that was issued to the LLC (in the LLC's
port those sales in both years as a result
in the same type of activity and one of
legal name) for a qualified retirement
of changing your accounting method
your main reasons for doing the work
plan, to file employment, excise, alco-
and must make a section 481(a) adjust-
was to avoid the disallowance of losses
hol, tobacco, or firearms returns, or as a
ment to prevent duplication of income.
or credits from the activity under the
payer of gambling winnings. If you do
passive activity rules.
A net negative section 481 adjust-
not have such an EIN, leave line D
ment is generally taken into account in
Work you did as an investor in an ac-
blank.
the year of change. A net positive sec-
tivity is not treated as participation un-
tion 481(a) adjustment is generally taken
less you were directly involved in the
Line E
into account over a period of 4 years. In-
day-to-day management or operations of
clude any net positive section 481(a) ad-
the activity. Work done as an investor
Enter your business address. Show a
justments on line 6. If the net section
includes:
street address instead of a box number.
481(a) adjustment is negative, report it
Studying and reviewing financial
Include the suite or room number, if
in Part V.
statements or reports on the activity,
any. If you conducted the business from
Preparing or compiling summaries
More information. For more informa-
your home located at the address shown
or analyses of the finances or operations
tion about changing your accounting
on page 1 of your tax return, you do not
of the activity for your own use, and
method and the section 481(a) adjust-
have to complete this line.
Monitoring the finances or opera-
ment, see the Instructions for Form
Line F
tions of the activity in a nonmanagerial
3115. Additional information also is
capacity.
available in various revenue procedures.
Generally, you can use the cash method,
See Rev. Proc. 2015-13 (and any subse-
Participation by your spouse during
an accrual method, or any other method
quent revenue procedures modifying
the tax year in an activity you own can
permitted by the Internal Revenue Code.
Rev. Proc. 2015-13) for the general pro-
be counted as your participation in the
In all cases, the method used must clear-
cedures to obtain the advance (non-auto-
activity. This rule applies even if your
ly reflect income. Unless you are a
small
matic) consent or automatic consent of
spouse did not own an interest in the ac-
business taxpayer
(defined later in Part
the Commissioner to change a method
tivity and whether or not you and your
III), you must use an accrual method for
of accounting. Rev. Proc. 2015-13 is
spouse file a joint return. However, this
sales and purchases of inventory items.
available
at
IRS.gov/irb/
rule does not apply for purposes of de-
Special rules apply to long-term con-
2015-5_IRB#RP-2015-13.
See
Rev.
termining whether you and your spouse
tracts (see section 460 for details).
Proc. 2019-43 (and any subsequent reve-
can elect to have your business treated
nue procedures modifying Rev. Proc.
as a qualified joint venture instead of a
If you use the cash method, show all
2019-43) for a list of automatic changes,
partnership (see
Qualified Joint
Venture,
items of taxable income actually or con-
including a description of its effect on
earlier).
structively received during the year (in
prior lists of automatic changes. Rev.
cash, property, or services). Income is
For purposes of the passive activity
Proc.
2019-43
is
available
at
constructively received when it is credi-
rules, you materially participated in the
IRS.gov/irb/2019-48_IRB#RP-2019-43.
ted to your account or set aside for you
operation of this trade or business activi-
to use. Also, show amounts actually paid
ty during 2019 if you met any of the fol-
Line G
during the year for deductible expenses.
lowing seven tests.
However, if the payment of an expendi-
1. You participated in the activity
If your business activity was not a rental
ture creates an asset having a useful life
for more than 500 hours during the tax
activity and you met any of the material
that extends beyond 12 months or the
year.
participation tests, explained next, or the
end of the next taxable year, it may not
exception for oil and gas
applies, check
2. Your participation in the activity
be deductible or may be deductible only
the “Yes” box. Otherwise, check the
for the tax year was substantially all of
in part for the year of the payment. See
“No” box. If you check the “No” box,
the participation in the activity of all in-
chapter 1 of Pub. 535.
this activity is passive. If you have a loss
dividuals (including individuals who did
from a passive activity, see
Limit on los-
For amounts includible in income and
not own any interest in the activity) for
ses, later. If you have a profit from the
deductible as expense under an accrual
the tax year.
rental of property to a nonpassive activi-
method, see Pub. 538.
3. You participated in the activity
ty, see Recharacterization of Passive In-
for more than 100 hours during the tax
To change your accounting method,
come in Pub. 925 to find out how to re-
year, and you participated at least as
you generally must file Form 3115. You
port the net income.
much as any other person for the tax
also may have to make an adjustment to
year. This includes individuals who did
prevent amounts of income or expense
Material participation. For purposes
not own any interest in the activity.
from being duplicated or omitted. This
of the seven material participation tests
is called a section 481(a) adjustment.
listed later, participation generally in-
4. The activity is a significant par-
cludes any work you did in connection
ticipation activity for the tax year, and
Example. You change to the cash
with an activity if you owned an interest
you participated in all significant partici-
method of accounting and choose to ac-
in the activity at the time you did the
pation activities for more than 500 hours
count for inventoriable items in the same
work. The capacity in which you did the
during the year. An activity is a “signifi-
manner as non-incidental materials and
work does not matter. However, work is
cant participation activity” if it involves
supplies for the 2019 tax year. You ac-
not treated as participation if it is work
the conduct of a trade or business, you
crued sales in 2018 for which you re-
that an owner would not customarily do
participated in the activity for more than
ceived payment in 2019. You must re-
C-4
100 hours during the tax year, and you
tivity is a passive activity and you have
Income you report on Sched-
did not materially participate under any
to use Form 8582 to apply a limitation
ule C may be qualified business
TIP
of the material participation tests (other
that may reduce the loss, if any, that you
income and entitle you to a de-
than this test 4).
may enter on Schedule C, line 31. For
duction on Form 1040 or 1040-SR,
details, see Pub. 925.
line 10.
5. You materially participated in the
activity for any 5 of the prior 10 tax
Line H
Line 1
years.
6. The activity is a personal service
If you started or acquired this business
Enter gross receipts from your trade or
activity in which you materially partici-
in 2019, check the box on line H. Also,
business. Include amounts you received
pated for any 3 prior tax years. A per-
check the box if you are reopening or re-
in your trade or business that were prop-
sonal service activity is an activity that
starting this business after temporarily
erly shown on Forms 1099-MISC. If the
involves performing personal services in
closing it, and you did not file a 2018
total amounts that were reported in
the fields of health, law, engineering, ar-
Schedule C or C-EZ for this business.
box 7 of Forms 1099-MISC are more
chitecture, accounting, actuarial science,
than the total you are reporting on line 1,
Line I
performing arts, consulting, or any other
attach a statement explaining the differ-
trade or business in which capital is not
ence.
If you made any payment in 2019 that
a material income-producing factor.
would require you to file any Forms
Statutory employees. If you received a
7. Based on all the facts and circum-
1099, check the “Yes” box. Otherwise,
Form W-2 and the "Statutory employee"
stances, you participated in the activity
check the “No” box.
box in box 13 of that form was checked,
on a regular, continuous, and substantial
report your income and expenses related
basis for more than 100 hours during the
You may have to file information re-
to that income on Schedule C. Enter
tax year.Your participation in managing
turns for wages paid to employees, cer-
your statutory employee income from
the activity does not count in determin-
tain payments of fees and other nonem-
box 1 of Form W-2 on line 1 of Sched-
ing if you meet this test if any person
ployee compensation, interest, rents,
ule C and check the box on that line. So-
(except you) (a) received compensation
royalties, real estate transactions, annui-
cial security and Medicare tax should
for performing management services in
ties, and pensions. You also may have to
have been withheld from your earnings;
connection with the activity, or (b) spent
file an information return if you sold
as a result, you do not owe self-employ-
more hours during the tax year than you
$5,000 or more of consumer products to
ment tax on these earnings. Statutory
spent performing management services
a person on a buy-sell, deposit-commis-
employees include full-time life insur-
in connection with the activity (regard-
sion, or other similar basis for resale.
ance agents, certain agent or commis-
less of whether the person was compen-
sion drivers and traveling salespersons,
The Guide to Information Re-
sated for the services).
and certain homeworkers.
turns in the 2019 General In-
TIP
structions for Certain Informa-
Rental of personal property. General-
If you had both self-employment in-
tion Returns identifies which Forms
come and statutory employee income,
ly, a rental activity (such as long-term
1099 must be filed, the amounts to re-
you must file two Schedules C. You
equipment leasing) is a passive activity
port, and the due dates for the required
cannot combine these amounts on a sin-
even if you materially participated in the
Forms 1099.
activity. However, if you met any of the
gle Schedule C.
five exceptions listed under Rental Ac-
Qualified joint ventures should
tivities in the Instructions for Form
!
report rental real estate income
Part I. Income
8582, the rental of the property is not
not subject to self-employment
CAUTION
treated as a rental activity and the mate-
tax on Schedule E. See
Qualified Joint
rial participation rules explained earlier
Venture, earlier, and the Instructions for
Except as otherwise provided in the In-
apply.
Schedule E.
ternal Revenue Code, gross income in-
Exception for oil and gas. If you are
cludes income from whatever source de-
filing Schedule C to report income and
Installment sales. Generally, the in-
rived. In certain circumstances, howev-
deductions from an oil or gas well in
stallment method cannot be used to re-
er, gross income does not include extra-
which you own a working interest di-
port income from the sale of (a) personal
territorial income that is qualifying for-
rectly or through an entity that does not
property regularly sold under the install-
eign trade income. Use Form 8873 to
limit your liability, check the “Yes” box.
ment method, or (b) real property held
figure the extraterritorial income exclu-
The activity of owning a working inter-
for resale to customers. But the install-
sion. Report it on Schedule C as ex-
est is not a passive activity, regardless of
ment method can be used to report in-
plained in the Instructions for Form
your participation.
come from sales of certain residential
8873.
Limit on losses. Your business activity
lots and timeshares if you elect to pay
loss may be limited if you checked the
interest on the tax due on that income af-
If you were a debtor in a chapter 11
“No” box on line G. In addition, your
ter the year of sale. See section 453(l)(2)
bankruptcy case during 2019, see Chap-
rental activity loss may be limited even
(B) for details. If you make this election,
ter 11 Bankruptcy Cases in the Instruc-
if you materially participated. In gener-
include the interest in the total on
tions for Forms 1040 and 1040-SR (un-
al, a business activity in which you do
Schedule 2 (Form 1040 or 1040-SR),
der Income) and the Instructions for
not materially participate or a rental ac-
line 8. Check box c and enter the
Schedule SE.
C-5
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