Form Pa-40 C - Pa Schedule C - Profit Or Loss From Business Or Profession (Sole Proprietorship) Page 6

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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
may include business accounting and tax return preparation
principles and practices. Once elected, use this method
expenses, but not the costs for personal accounting and tax
consistently.
returns.
100 percent of expenses incurred for removing barriers to
individuals with disabilities and the elderly. This is not a
Line 21.
Management fees. Include any management fees
credit but a direct expense in arriving at the net income
paid in conjunction with the operation of the business to any
or loss.
related or non-related entity.
Home office expenses. Pennsylvania generally follows the
Line 23.
Pension and profit-sharing plans for employees.
federal rules for a home office.
Only deduct those expenses directly related to pension and
Any other expenses allowed under generally accepted
profit-sharing plans for employees. You may not deduct any
accounting principles or financial accounting standards
pension or profit-sharing expenses for your own personal
board rules but are not allowable or limited under federal
retirement benefits.
rules. Itemize these expenses.
Line 25.
Rent on business property. Only deduct those
Line 35.
expenditures you incurred in the operation of your business or
Total deductions. Add Lines 6 through 34.
profession.
Line 36.
Other business credits. If you claimed one or
Line 27.
Subcontractor fees. Deduct subcontractor fees
more of these credits, reduce total expenses by costs to qualify
that were not included in your calculation of cost of labor from
for the credit:
Line 3 of Schedule C-1. Also include any fees paid to payees
PA Employment Incentive Payments Credit
not included as employees to whom regular wages were paid.
PA Job Creation Tax Credit
Line 29.
Taxes. Deduct tax expenses other than taxes based
PA Research and Development Tax Credit
on income. You may not deduct taxes based on net income,
If you did not claim one of these business credits, enter zero
federal income taxes or the one-half of self-employment taxes
on Line 36.
the IRS allows. Do not deduct taxes paid to other states or
foreign countries based on income. Do not deduct estate,
Line 37.
Total Adjusted Expenses. Reduce Line 35 by
inheritance, legacy, succession or gift taxes. Assessments for
Line 36.
betterments and improvements are not allowed. Business
Line 38.
Net profit or loss. Subtract Line 37 from Line 5. In
privilege taxes and/or gross receipts taxes are acceptable
calculating net profit or loss from your business or profession,
deductions.
report your entire loss in this taxable year.
Line 31.
Travel and entertainment. PA law does not follow
Schedule C-1 – Cost of goods sold and/or
federal law. Deduct 100 percent of your allowable travel and
operations
entertainment expenses. You may never deduct the personal
portion of your travel and entertainment expenses, whether for
Generally, if you engaged in a trade or business in which the
yourself, your spouse, your dependents or any other person.
production, purchase or sale of merchandise was an income-
You may use the federal standard meal allowance.
producing factor, you must consider inventories at the beginning
and end of your tax year.
Line 33.
Wages. Do not reduce your wage expense for any
federal credits you claim. Add back any wage expense excluded
In determining inventory value, use the cost, lower of cost or
in order to claim a federal credit. Do not deduct the costs of
market or other method allowable under accepted accounting
your own participation.
principles and practices. If you change methods of valuing
inventory, restate the value at the beginning of the year based
Line 34.
Other expenses. Deduct any other costs of doing
on the changed method, and include an explanation. There is
business or providing professional services if such costs are
no provision under PA PIT law similar to IRC Section 481(a)
permitted under accepted accounting principles and practices.
that permits taxpayers to spread the income effect of a
Itemize the additional expenses you claim, and enter the total
change in method over a specified period. PA PIT rules also do
on Line 34, Total other expenses. You may deduct:
not permit valuing inventory using uniform capitalization rules
100 percent of the PA Sales Tax paid on a depreciable
under IRC section 263 A (a) and (b) and inventories calculated
business asset. However, on disposition, your Pennsylvania
using this method for federal purposes must be recalculated
basis and federal basis for that asset will be different.
for PA PIT purposes.
Charitable contributions made from your business account
and acknowledged publicly by the recipient. Personal
Schedule C-2 – Depreciation
charitable contributions are not allowed.
Complete this schedule if you are using a depreciation method
other than federal depreciation reported on your Federal
Expenses using the capitalization rules established by your
trade, profession, or industry, under its accepted accounting
Schedule C. See the instructions for Line 13 on Page 3.
PAGE 4

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