Instructions For Schedule C 1040 - 2016 (Page 5 of 18) in pdf

material participation rules explained

Installment sales. Generally, the in-

Part I. Income

earlier apply.

stallment method cannot be used to re-

Exception for oil and gas. If you are

port income from the sale of (a) personal

Except as otherwise provided in the In-

filing Schedule C to report income and

property regularly sold under the install-

ternal Revenue Code, gross income in-

deductions from an oil or gas well in

ment method, or (b) real property held

cludes income from whatever source de-

which you own a working interest di-

for resale to customers. But the install-

rived. In certain circumstances, howev-

rectly or through an entity that does not

ment method can be used to report in-

er, gross income does not include extra-

limit your liability, check the “Yes” box.

come from sales of certain residential

territorial income that is qualifying for-

The activity of owning a working inter-

lots and timeshares if you elect to pay

eign trade income. Use Form 8873 to

est is not a passive activity, regardless of

interest on the tax due on that income af-

figure the extraterritorial income exclu-

your participation.

ter the year of sale. See section 453(l)(2)

sion. Report it on Schedule C as ex-

(B) for details. If you make this election,

Limit on losses. Your business activity

plained in the Instructions for Form

include the interest in the total on Form

loss may be limited if you checked the

8873.

1040, line 62. Check box c and enter the

“No” box on line G. In addition, your

If you were a debtor in a chapter 11

amount of interest and “453(l)(3)” on

rental activity loss may be limited even

bankruptcy case during 2016, see Chap-

the line next to that box.

if you materially participated. In gener-

ter 11 Bankruptcy Cases in the Instruc-

al, a business activity in which you do

If you use the installment method, at-

tions for Form 1040 (under Income) and

not materially participate or a rental ac-

tach a statement to your return. Show

the Instructions for Schedule SE.

tivity is a passive activity and you have

separately for 2016 and the 3 preceding

to use Form 8582 to figure your allowa-

years: gross sales, cost of goods sold,

Line 1

ble loss, if any, to enter on Schedule C,

gross profit, percentage of gross profit to

line 31. For details, see Pub. 925.

gross sales, amounts collected, and gross

Enter gross receipts from your trade or

profit on amounts collected.

business. Include amounts you received

Line H

in your trade or business that were prop-

Line 2

erly shown on Forms 1099-MISC. If the

If you started or acquired this business

total amounts that were reported in

in 2016, check the box on line H. Also

Report your sales returns and allowan-

box 7 of Forms 1099-MISC are more

check the box if you are reopening or re-

ces as a positive number on line 2. A

than the total you are reporting on line 1,

starting this business after temporarily

sales return is a cash or credit refund

attach a statement explaining the differ-

closing it, and you did not file a 2015

you gave to customers who returned de-

ence.

Schedule C or C-EZ for this business.

fective, damaged, or unwanted products.

Statutory employees. If you received a

A sales allowance is a reduction in the

Line I

Form W-2 and the "Statutory employee"

selling price of products, instead of a

box in box 13 of that form was checked,

cash or credit refund.

If you made any payment in 2016 that

report your income and expenses related

would require you to file any Forms

Line 6

to that income on Schedule C or C-EZ.

1099, check the “Yes” box. Otherwise,

Enter your statutory employee income

check the “No” box.

Report on line 6 amounts from finance

from box 1 of Form W-2 on line 1 of

reserve income, scrap sales, bad debts

Schedule C or C-EZ and check the box

You may have to file information re-

you recovered, interest (such as on notes

on that line. Social security and Medi-

turns for wages paid to employees, cer-

and accounts receivable), state gasoline

care tax should have been withheld from

tain payments of fees and other nonem-

or fuel tax refunds you received in 2016,

your earnings; as a result, you do not

ployee compensation, interest, rents,

any amount of credit for biofuel claimed

owe self-employment tax on these earn-

royalties, real estate transactions, annui-

on line 2 of Form 6478, any amount of

ings.

Statutory

employees

include

ties, and pensions. You may also have to

credit for biodiesel and renewable diesel

full-time life insurance agents, certain

file an information return if you sold

fuels claimed on line 8 of Form 8864,

agent or commission drivers and travel-

$5,000 or more of consumer products to

credit for federal tax paid on fuels

ing salespersons, and certain homework-

a person on a buy-sell, deposit-commis-

claimed on your 2015 Form 1040, prizes

ers.

sion, or other similar basis for resale.

and awards related to your trade or busi-

If you had both self-employment in-

The Guide to Information Re-

ness, and other kinds of miscellaneous

come and statutory employee income,

turns in the 2016 General In-

business income. Include amounts you

TIP

you must file two Schedules C. You

structions for Certain Informa-

received in your trade or business as

cannot use Schedule C-EZ or combine

tion Returns identifies which Forms

shown on Form 1099-PATR.

these amounts on a single Schedule C.

1099 must be filed, the amounts to re-

If the business use percentage of any

port, and the due dates for the required

Qualified joint ventures should

listed property (defined in

Line

13, later)

Forms 1099.

report rental real estate income

dropped to 50% or less in 2016, report

not subject to self-employment

CAUTION

on this line any recapture of excess de-

tax on Schedule E. See

Qualified Joint

preciation, including any section 179 ex-

Venture, earlier, and the Instructions for

pense deduction. Use Part IV of Form

Schedule E.

4797 to figure the recapture. Also, if the

C-5

Instructions For Schedule C 1040 - 2016 Page 5

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