Instructions For Schedule C - Profit Or Loss From Business

Department of the Treasury

Internal Revenue Service

2004 Instructions for Schedule C

Use Schedule C (Form 1040) to report income or loss from a business you operated or a

Profit or Loss

profession you practiced as a sole proprietor. Also, use Schedule C to report wages and

expenses you had as a statutory employee. An activity qualifies as a business if your primary

From Business

purpose for engaging in the activity is for income or profit and you are involved in the

activity with continuity and regularity. For example, a sporadic activity or a hobby does not

qualify as a business. To report income from a nonbusiness activity, see the instructions for

Form 1040, line 21.

Small businesses and statutory employees with 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.

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Schedule J to figure your tax by aver-

your reporting position will be treated as a

What’s New

aging your fishing income over the previ-

conversion of the entity.

ous 3 years. Doing so may reduce your tax.

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Single-member limited liability company

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The maximum amount of business ex-

Schedule SE to pay self-employment

Generally, a single-member do-

(LLC).

penses you can have and qualify to file

tax on income from any trade or business.

mestic LLC is not treated as a separate en-

Schedule C-EZ is increased from $2,500 to

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Form 4562 to claim depreciation on

tity for federal income tax purposes. If you

$5,000 for 2004. For other requirements

assets placed in service in 2004, to claim

are the sole member of a domestic LLC,

you must meet, see Schedule C-EZ.

amortization that began in 2004, to make an

file Schedule C or C-EZ (or Schedule E or

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You can use up to four vehicles simul-

election under section 179 to expense cer-

F, if applicable). However, you can elect to

taneously in your business and use the stan-

tain property, or to report information on

treat a domestic LLC as a corporation. See

dard mileage rate. For details, see the

listed property.

Form 8832 for details on the election and

instructions for line 9 beginning on

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the tax treatment of a foreign LLC.

Form 4684 to report a casualty or theft

page C-3.

gain or loss involving property used in your

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If you use

Heavy highway vehicle use tax.

For certain business start-up costs

trade or business or income-producing

certain highway trucks, truck-trailers,

paid or incurred after October 22, 2004,

property.

tractor-trailers, or buses in your trade or

you can elect to deduct up to $5,000. This

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Form 4797 to report sales, exchanges,

business, you may have to pay a federal

limit is reduced by the amount by which

and involuntary conversions (not from a

highway motor vehicle use tax. See the In-

your start-up costs exceed $50,000. Also,

casualty or theft) of trade or business prop-

structions for Form 2290 to find out if you

the amortization period for certain business

erty.

owe this tax.

start-up costs paid or incurred after October

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Form 8271 if you are claiming or re-

22, 2004, has been increased to 15 years.

Information returns.

You may have to file

porting on Schedule C or C-EZ any in-

For details, see Pub. 535.

information returns for wages paid to em-

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come, deduction, loss, credit, or other tax

You can elect to deduct costs of cer-

ployees, certain payments of fees and other

benefit from an interest purchased or other-

tain qualified film and television produc-

nonemployee compensation, interest, rents,

wise acquired in a tax shelter required to be

tions that begin after October 22, 2004. For

royalties, real estate transactions, annuities,

registered with the IRS.

details, see Pub. 535.

and pensions. You may also have to file an

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Form 8594 to report certain purchases

information return if you sold $5,000 or

You can elect to deduct certain forest-

or sales of groups of assets that constitute a

more of consumer products to a person on a

ation and reforestation costs paid or in-

trade or business.

buy-sell, deposit-commission, or other sim-

curred after October 22, 2004, instead of

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ilar basis for resale. For details, see the

Form 8824 to report like-kind ex-

amortizing them over 84 months. This elec-

2004 General Instructions for Forms 1099,

changes.

tion does not apply to estates and trusts.

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1098, 5498, and W-2G.

Also, the dollar limitation for amortization

Form 8829 to claim expenses for busi-

on certain forestation and reforestation

ness use of your home.

If you received cash of more than

costs paid or incurred after October 22,

$10,000 in one or more related transactions

If you and your

Husband-wife business.

2004, has been eliminated. For details, see

in your trade or business, you may have to

spouse jointly own and operate a business

Pub. 535.

file Form 8300. For details, see Pub. 1544.

and share in the profits and losses, you are

partners in a partnership, whether or not

Reportable Transaction

you have a formal partnership agreement.

General Instructions

Disclosure Statement

Do not use Schedule C or C-EZ. Instead,

file Form 1065. See Pub. 541 for more de-

Use Form 8886 to disclose information for

tails.

Other Schedules and Forms

each reportable transaction in which you

participated. Form 8886 must be filed for

You May Have To File

Exception. If you and your spouse

each tax year that your federal income tax

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wholly own an unincorporated business as

Schedule A to deduct interest, taxes,

liability is affected by your participation in

community property under the community

and casualty losses not related to your busi-

the transaction. You may have to pay a

property laws of a state, foreign country, or

ness.

penalty if you are required to file Form

U.S. possession, you can treat the business

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Schedule E to report rental real estate

8886 but do not do so. The following are

either as a sole proprietorship or a partner-

and royalty income or (loss) that is not sub-

reportable transactions.

ship. The only states with community prop-

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ject to self-employment tax.

erty laws are Arizona, California, Idaho,

Any transaction that is the same as or

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Schedule F to report profit or (loss)

Louisiana, Nevada, New Mexico, Texas,

substantially similar to tax avoidance trans-

from farming.

Washington, and Wisconsin. A change in

actions identified by the IRS.

C-1

Cat. No. 24329W

Instructions For Schedule C - Profit Or Loss From Business - 2004

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