Instructions For Schedule C 1040 - 2016 (Page 15 of 18) in pdf

are $10 million or less, (b) whose busi-

and the refigured amount, attach an ex-

Also, you cannot deduct fines or penal-

ness is not a tax shelter (as defined in

planation and take it into account when

ties paid to a government for violating

section 448(d)(3)), and (c) whose princi-

figuring your section 481(a) adjustment.

any law. For details on business expen-

pal business activity is not an ineligible

For details, see the

example

under Line

ses, see Pub. 535.

activity as explained in Rev. Proc.

F, earlier.

Amortization. Include amortization in

2002-28. You can find Rev. Proc.

this part. For amortization that begins in

Line 41

2002-28 on page 815 of Internal Reve-

2016, you must complete and attach

nue Bulletin 2002-18 at

IRS.gov/pub/irs-

Form 4562.

If you account for inventoriable items in

irbs/irb02-18.pdf.

You can amortize such costs as:

the same manner as materials and sup-

To figure your average annual gross

The cost of pollution-control fa-

plies that are not incidental, enter on

receipts for each tax year, add the gross

line 41 the portion of your raw materials

cilities;

receipts for that tax year and the 2 pre-

Amounts paid for research and ex-

and merchandise purchased for resale

ceding tax years. Divide the total by

perimentation;

that is included on line 40 and was not

three.

Qualified revitalization expendi-

sold during the year.

tures (for buildings placed in service be-

Changing accounting methods. File

fore 2010);

Form 3115 if you are a qualifying tax-

Part IV. Information

Amounts paid to acquire, protect,

payer or qualifying small business tax-

expand, register, or defend trademarks

on Your Vehicle

payer and want to change to the cash

or trade names; or

method or to account for inventoriable

Goodwill and certain other intangi-

items as non-incidental materials and

Line 44b

bles.

supplies.

In most cases, you cannot amortize

Additional information. For addi-

In most cases, commuting is travel be-

real property construction period interest

tional guidance on this method of ac-

tween your home and a work location. If

and taxes. Special rules apply for allo-

counting for inventoriable items, see the

you converted your vehicle during the

cating interest to real or personal proper-

following.

year from personal to business use (or

ty produced in your trade or business.

Pub. 538 discusses both excep-

vice versa), enter your commuting miles

For a complete list, see the instruc-

tions.

only for the period you drove your vehi-

tions for Form 4562, Part VI.

If you are a qualifying taxpayer,

cle for business. For information on cer-

see Rev. Proc. 2001-10, on page 272 of

At-risk loss deduction. Any loss from

tain travel that is considered a business

Internal Revenue Bulletin 2001-2 at

this business that was not allowed last

expense rather than commuting, see the

IRS.gov/pub/irs-irbs/irb01-02.pdf.

year because of the at-risk rules is treat-

Instructions for Form 2106.

If you are a qualifying small busi-

ed as a deduction allocable to this busi-

Line 47

ness taxpayer, see Rev. Proc. 2002-28,

ness in 2016.

on page 815 of Internal Revenue Bulle-

Bad debts. Include debts and partial

Specific recordkeeping rules apply to

tin 2002-18 at

IRS.gov/pub/irs-irbs/

debts from sales or services that were in-

car or truck expenses. For more infor-

irb02-18.pdf.

cluded in income and are definitely

mation about what records you must

known to be worthless. If you later col-

Certain direct and indirect ex-

keep, see Pub. 463.

lect a debt that you deducted as a bad

penses may have to be capital-

You may maintain written evidence

debt, include it as income in the year

ized or included in inventory.

CAUTION

by using an electronic storage system

collected. For details, see chapter 10 of

See

Part

II, earlier. See Pub. 538 for ad-

that meets certain requirements. For

Pub. 535.

ditional information.

more information about electronic stor-

Business start-up costs. If your busi-

age systems, see Pub. 583.

Line 33

ness began in 2016, you can elect to de-

duct up to $5,000 of certain business

Your inventories can be valued at cost,

start-up costs. The $5,000 limit is re-

Part V. Other

the lower of cost or market, or any other

duced (but not below zero) by the

Expenses

method approved by the IRS. However,

amount by which your total start-up

you are required to use cost if you are

costs exceed $50,000. Your remaining

using the cash method of accounting.

start-up costs can be amortized over a

Include all ordinary and necessary busi-

180-month period, beginning with the

ness expenses not deducted elsewhere

Line 35

month the business began.

on Schedule C. List the type and amount

For details, see chapters 7 and 8 of

of each expense separately in the space

If you are changing your method of ac-

Pub. 535. For amortization that begins in

provided. Enter the total on lines 48 and

counting beginning with 2016, refigure

2016, you must complete and attach

27a. Do not include the cost of business

last year's closing inventory using your

Form 4562.

equipment or furniture, replacements or

new method of accounting and enter the

permanent improvements to property, or

result on line 35. If there is a difference

Costs of making commercial buildings

personal, living, and family expenses.

between last year's closing inventory

energy efficient. You may be able to

Do not include charitable contributions.

C-15

Instructions For Schedule C 1040 - 2016 Page 15

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