Form Pa-40 C - Pa Schedule C - Profit Or Loss From Business Or Profession (Sole Proprietorship) Page 5

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PA Schedule C
Profit or Loss from Business or
Profession (Sole Proprietorship)
PA-40 C (08–09) (FI)
PA DEPARTMENT OF REVENUE
Land and Buildings.
percent of your actual vehicle expenses or you may use the
For PA purposes, you may not include
federal standard mileage rate. If you use the federal standard
the sales of land and buildings on PA Schedule C unless the
mileage rate, you may not deduct any actual operating
property sold is replaced. When the property sold is not
expenses, including depreciation and lease costs. Follow the
replaced, the Department deems such sales as dispositions of
Federal Schedule C rules for these expenses. If you use your
a segment of a business to be reflected on PA Schedule D.
car or truck for both business and personal travel, you may
Line 1b.
Returns and allowances. This amount is the same
only deduct the business portion of your expenses.
for both Pennsylvania and federal purposes. If you report a
Line 13a.
different amount for Pennsylvania, submit an explanation.
Regular depreciation. Use any depreciation
method permissible under accepted accounting principles and
Line 2.
Cost of goods sold. This amount is the same for
practices as long as you consistently apply the method.
Pennsylvania and federal purposes. If you report a different
NOTE:
amount for Pennsylvania, submit an explanation.
PA PIT law does not permit the bonus depreciation
elections added to the Internal Revenue Code in 2002, 2003,
Line 4.
Other income. Enter gross proceeds you may have
2008 and 2009.
to report elsewhere on your federal tax return, including but
not limited to:
For each asset, you must also report straight-line depreciation,
unless not using an optional accelerated depreciation method.
The sale of business assets when you reinvest the proceeds
You need straight-line depreciation to take advantage of
in business operations;
Pennsylvania’s Tax Benefit Rule when you sell the asset. See
The gain (loss) on replacing business property, including land
the PA PIT Guide for the Tax Benefit Rule.
or buildings used in operating your business or profession;
and
PA Law requires that taxpayers use straight-line depreciation
if an asset’s basis for determining depreciation is different
Interest and dividend income from short-term investments
from its basis for federal income tax purposes.
to generate working capital.
Line 13b. Section 179 expense.
PA PIT law limits IRC
Submit a statement explaining the amount you enter. See the
Section 179 current expensing to the expensing allowed at the
PA PIT Guide for an explanation of allocable interest, dividends
time you placed the asset into service or in effect under the
and gains to business or professions. Include other income
IRC of 1986 as amended to Jan. 1, 1997. The maximum
you enter on Line 6, Federal Schedule C, but not refunds of
deduction that PA Income Tax law permits under IRC Section
federal taxes and credits you did not deduct for PA purposes.
179 is $25,000. Pennsylvania follows the federal definitions for
Part II.
Deductions
listed property.
Use accepted accounting principles and practices to maintain
Line 14.
your books and records and report your expenses from your
Dues and publications. You may deduct dues and
business or professional activity. PA law does not impose
publications, but only to the extent directly used for ordinary
dollar or percentage limitations on allowable expenses. You
business purposes. You must exclude any personal use of such
may deduct 100 percent of the PA allowable business or
expenses.
professional expenses incurred during the taxable year.
Line 15.
Employee benefit programs other than on Line
NOTE:
You may have incurred other expenses for entertainment
23. You may not deduct any payments you make for your own
facilities (boat, resort, ranch, etc.), living accommodations
personal coverage. Pennsylvania does not allow any personal
(except for employees on business) or vacations for yourself,
expenses on any PA tax return.
your employees or their families. Reduce your total business
Line 17.
Insurance. You may deduct life insurance on
expenses in Part II by the total of these personal expenses.
yourself or your spouse only if the business is the beneficiary
Generally, you may usually use your Federal Schedule C
(not your spouse, other family members or other persons).
expenses for PA PIT purposes. See the other Pennsylvania and
The business must use the insurance proceeds to continue
federal income tax differences explanation beginning on Page 1
business operations. If deducting insurance premiums, the
of the instructions for more information.
proceeds are business income on Line 4 of Part I.
You may not use federal amounts after making certain elections
Line 18.
Interest on business indebtedness. Deduct
to accelerate or defer expenses or spread expenses over more
interest on business debt only. If you personally borrow
than one taxable year. These instructions explain those expense
money to acquire a business interest or to improve your
categories where PA PIT rules and federal rules differ.
business, you may not deduct the interest on any PA schedule
Line 7.
Amortization. Pennsylvania generally follows federal
or PA tax return.
rules. You have the option to use any amortization method
Line 20.
Legal and professional services. Only deduct
allowable under accepted accounting principles and practices.
those expenses you incur in operating your business or
Line 10.
Car and truck expenses. You may deduct 100
profession. You may not deduct any personal expenses. You
PAGE 3

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