Instructions For Schedule C 1040 - 2016 (Page 14 of 18) in pdf

Notary public. Do not enter your net

(excluding casualty insurance and insur-

If you checked box 32b because

profit from line 31 on Schedule SE,

ance against tort liability).

some investment is not at risk

line 2, unless you are required to file

Amounts borrowed for use in the

and you do not attach Form

CAUTION

Schedule SE because you have other

business from a person who has an inter-

6198, the processing of your return may

self-employment income. See the In-

est in the business, other than as a cred-

be delayed.

structions for Schedule SE.

itor, or who is related under section

465(b)(3)(C) to a person (other than

At-risk loss deduction. Any loss from

Community income. If you and your

you) having such an interest.

this business not allowed for 2016 only

spouse had community income and are

because of the at-risk rules is treated as a

filing separate returns, see the Instruc-

Figuring your allowable loss. Before

deduction allocable to the business in

tions for Schedule SE before figuring

determining your allowable loss, you

2017.

self-employment tax.

must check box 32a or 32b to determine

if the loss from your business activity is

More information. For details, see the

Earned income credit. If you have a

limited by the at-risk rules. Follow the

Instructions for Form 6198 and Pub.

net profit on line 31, this amount is

instructions, next, that apply to your

925.

earned income and may qualify you for

box 32 activity.

the earned income credit (EIC).

All investment is at risk. If all

To figure your EIC, use the in-

Part III. Cost of

amounts are at risk in this business,

structions for Form 1040, lines

Goods Sold

check box 32a. If you answered “Yes”

66a and 66b. Complete all ap-

CAUTION

on line G, your remaining loss (after ap-

plicable steps plus Worksheet B. If you

plying the excess farm loss rules) is your

In most cases, if you engaged in a trade

are required to file Schedule SE, remem-

allowable loss. The at-risk rules and the

or business in which the production,

ber to enter one-half of your self-em-

passive activity loss rules do not apply.

purchase, or sale of merchandise was an

ployment tax in Part 1, line 1d, of Work-

See

Line

31, earlier, for how to report

income-producing factor, you must take

sheet B.

your allowable loss.

inventories into account at the beginning

and end of your tax year.

Line 32

But if you answered “No” on line G,

you may need to complete Form 8582 to

Exception for certain taxpayers. If

figure your allowable loss to enter on

you are a qualifying taxpayer or a quali-

You do not need to complete

line 31. See the Instructions for Form

fying small business taxpayer (discussed

line 32 if line 7 is more than the

TIP

8582 for details.

next), you can account for inventoriable

total of lines 28 and 30.

items in the same manner as materials

Some investment is not at risk. If

and supplies that are not incidental. Un-

At-risk rules. In most cases, if you

some investment is not at risk, check

der this accounting method, inventory

have a business loss and amounts inves-

box 32b; the at-risk rules apply to your

costs for raw materials purchased for use

ted in the business for which you are not

loss. Be sure to attach Form 6198 to

in producing finished goods and mer-

at risk, you must complete Form 6198 to

your return.

chandise purchased for resale are deduc-

figure your allowable loss. The at-risk

If you answered "Yes" on line G,

tible in the year the finished goods or

rules generally limit the amount of loss

complete Form 6198 to figure the allow-

merchandise are sold (but not before the

(including loss on the disposition of as-

able loss to enter on line 31. The passive

year you paid for the raw materials or

sets) you can claim to the amount you

activity loss rules do not apply. See

merchandise, if you are also using the

could actually lose in the business.

Line

31, earlier, for how to report your

cash method). Enter amounts paid for all

Check box 32b if you have amounts

allowable loss.

raw materials and merchandise during

invested in this business for which you

But if you answered "No" on line G,

2016 on line 36. The amount you can

are not at risk, such as the following.

the passive activity loss rules may apply.

deduct for 2016 is figured on line 42.

Nonrecourse loans used to finance

First complete Form 6198 to figure the

the business, to acquire property used in

Qualifying taxpayer. This is a tax-

amount of your profit or (loss) for the

payer (a) whose average annual gross re-

the business, or to acquire the business

at-risk activity, which may include

ceipts for each tax year ending on or af-

that are not secured by your own proper-

amounts reported on other forms and

ter December 17, 1998, are $1 million or

ty (other than property used in the busi-

schedules, and the at-risk amount for the

less, and (b) whose business is not a tax

ness). However, there is an exception for

activity. Follow the Instructions for

shelter (as defined in section 448(d)(3)).

certain nonrecourse financing borrowed

Form 6198 to determine how much of

by you in connection with holding real

To figure your average annual gross re-

your Schedule C loss will be allowed.

ceipts for each tax year, add the gross

property.

After you figure the amount of your loss

receipts for that tax year and the 2 pre-

Cash,

property,

borrowed

that is allowed under the at-risk rules,

ceding tax years. Divide the total by

amounts used in the business (or con-

you may need to complete Form 8582 to

three.

tributed to the business, or used to ac-

figure the allowable loss to enter on

quire the business) that are protected

line 31. See the Instructions for Form

Qualifying small business taxpayer.

against loss by a guarantee, stop-loss

8582 for details.

This is a taxpayer (a) whose average an-

agreement, or other similar arrangement

nual gross receipts for each tax year

ending on or after December 31, 2000,

C-14

Instructions For Schedule C 1040 - 2016 Page 14

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