Federal Schedule C Instructions

Schedule C Instructions
2023 Instructions for Schedule C
Department of the Treasury
Internal Revenue Service

2023 Instructions for Schedule C
Profit or Loss
From Business

Section references are to the Internal
Revenue Code unless otherwise noted.

Future Developments
For the latest information about developments related to Schedule C and its
instructions, such as legislation enacted
after they were published, go to IRS.gov/
ScheduleC.

What's New
Redesigned Form 1040-SS. For 2023,
Schedule C (Form 1040) is available to
be filed with Form 1040-SS, if applicable. It replaces Form 1040-SS, Part IV.
For additional information, see the Instructions for Form 1040-SS.
Standard mileage rate. The business
standard mileage rate for 2023 is 65.5
cents per mile.
Business meals deduction. The temporary 100% deduction for food or beverages provided by a restaurant has expired. The business meal deduction
reverts back to the previous 50% allowable deduction beginning January 1,
2023.
Energy efficient commercial buildings
deduction. The energy efficient commercial buildings deduction is now reported on new line 27b.
Bonus depreciation. The bonus depreciation deduction under section 168(k)
begins its phaseout in 2023 with a reduction of the applicable limit from
100% to 80%.

Dec 29, 2023

Use Schedule C (Form 1040) to report income or (loss) from a business you operated
or a profession you practiced as a sole proprietor. An activity qualifies as a business if
your primary purpose for engaging in the activity is for income or profit and you are
involved in the activity with continuity and regularity. For example, a sporadic activity, a not-for-profit activity, or a hobby does not qualify as a business. To report income
from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8j.
Also, use Schedule C to report (a) wages and expenses you had as a statutory employee; (b) income and deductions of certain qualified joint ventures; and (c) certain
amounts shown on a Form 1099, such as Form 1099-MISC, Form 1099-NEC, and
Form 1099-K. See the instructions on your Form 1099 for more information about
what to report on Schedule C.
You may be subject to state and local taxes and other requirements such as business
licenses and fees. Check with your state and local governments for more information.
Commercial clean vehicle credit.
Businesses that buy a qualified commercial clean vehicle may qualify for a
clean vehicle tax credit. See Form 8936
and its instructions for more information.

Reminders
Gig economy tax center. The gig (or
on-demand, sharing, or access) economy
refers to an activity where people earn
income providing on-demand work,
services, or goods. Go to IRS.gov/Gig to
get more information about the tax consequences of participating in the gig
economy.
Excess business loss limitation. If you
report a loss on line 31 of your Schedule C (Form 1040), you may be subject
to a business loss limitation. The disallowed loss resulting from the limitation
will not be reflected on line 31 of your
Schedule C. Instead, use Form 461 to
determine the amount of your excess
business loss, which will be included as
income on Schedule 1 (Form 1040),
line 8p. Any disallowed loss resulting
from this limitation will be treated as a
net operating loss that must be carried
forward and deducted in a subsequent
year.
See Form 461 and its instructions for
details on the excess business loss limitation.
Small Business and Self-Employed
(SB/SE) Tax Center. Do you need help
with a tax issue or preparing your return,
Cat. No. 24329W

or do you need a free publication or
form? SB/SE serves taxpayers who file
Form 1040, 1040-SR, Schedules C, E, F,
or Form 2106, as well as small business
taxpayers with assets under $10 million.
For additional information, go to the
Small Business and Self-Employed Tax
Center at IRS.gov/SmallBiz.

General
Instructions
Other Schedules and Forms
You May Have To File

• Schedule A (Form 1040) to deduct
interest, taxes, and casualty losses not
related to your business.
• Schedule E (Form 1040) to report
rental real estate and royalty income or
(loss) that is not subject to
self-employment tax.
• Schedule F (Form 1040) to report
profit or (loss) from farming.
• Schedule J (Form 1040) to figure
your tax by averaging your farming or
fishing income over the previous 3
years. Doing so may reduce your tax.
• Schedule SE (Form 1040) to pay
self-employment tax on income from
any trade or business.
• Form 461 to report an excess
business loss.
• Form 3800 to claim any of the
general business credits.
• Form 4562 to claim depreciation
and amortization on assets placed in
service in 2023, to claim amortization
that began in 2023, to make an election
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under section 179 to expense certain
property, or to report information on
listed property.
• Form 4684 to report a casualty or
theft gain or (loss) involving property
used in your trade or business or
income-producing property.
• Form 4797 to report sales,
exchanges, and involuntary conversions
(not from a casualty or theft) of trade or
business property.
• Form 6198 to apply a limitation to
your loss if you have a business loss and
you have amounts invested in the
business for which you are not at risk.
• Form 6252 to report income from
an installment agreement.
• Form 7205 to claim the IRC 179D
deduction for qualifying energy efficient
commercial building expenses.
• Form 8582 to apply a limitation to
your loss from passive activities.
• Form 8594 to report certain
purchases or sales of groups of assets
that constitute a trade or business.
• Form 8824 to report like-kind
exchanges.
• Form 8829 to claim actual
expenses for business use of your home.
• Form 8936 to claim the
commercial clean vehicle credit.
• Form 8960 to pay Net Investment
Income Tax on certain income from
your passive activities.
• Form 8990 to determine whether
your business interest deduction is
limited.
• Form 8995 or 8995-A to claim a
deduction for qualified business income.
Single-member limited liability company (LLC). Generally, a single-member domestic LLC is not treated as a separate entity for federal income tax
purposes. If you are the sole member of
a domestic LLC, file Schedule C (or
Schedule E or F, if applicable) unless
you have elected to treat the domestic
LLC as a corporation. See Form 8832
for details on making this election and
for information about the tax treatment
of a foreign LLC.
Single-member LLCs with employees.
A single-member LLC must file employment tax returns using the LLC's
name and employer identification number (EIN) rather than the owner's name
and EIN, even if the LLC is not treated
as a separate entity for federal income
tax purposes.

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Heavy highway vehicle use tax. If you
use certain highway trucks, truck-trailers, tractor-trailers, or buses in your
trade or business, you may have to pay a
federal highway motor vehicle use tax.
See the Instructions for Form 2290 to
find out if you must pay this tax and go
to IRS.gov/Trucker for the most recent
developments.
Information returns. You may have to
file information returns for wages paid
to employees, and certain payments of
fees and other nonemployee compensation, interest, rents, royalties, real estate
transactions, annuities, and pensions.
See Line I, later, and the 2023 General
Instructions for Certain Information Returns for details and other payments that
may require you to file a Form 1099.
If you received cash of more than
$10,000 in one or more related transactions in your trade or business, you may
have to file Form 8300. For details, see
Pub. 1544. See also the IRS Form 8300
Reference Guide, available at IRS.gov/
Businesses/Small-Businesses-SelfEmployed/IRS-Form-8300-ReferenceGuide.

Business Owned and
Operated by Spouses
Generally, if you and your spouse jointly
own and operate an unincorporated business and share in the profits and losses,
you are partners in a partnership, whether or not you have a formal partnership
agreement. You generally have to file
Form 1065 instead of Schedule C for
your joint business activity; however,
you may not have to file Form 1065 if
either of the following applies.
• You and your spouse elect to be
treated as a qualified joint venture. See
Qualified Joint Venture next.
• You and your spouse wholly own
the unincorporated business as community property and you treat the business as
a sole proprietorship. See Community
Income, later.
Otherwise, use Form 1065. See Pub. 541
for information about partnerships.
Qualified Joint Venture
You and your spouse can elect to treat an
unincorporated business as a qualified
joint venture instead of a partnership if
you:

• Each materially participate in the
business (see Material participation, later, in the instructions for line G);
• Are the only owners of the business; and
• File a joint return for the tax year.
Making the election will allow you to
avoid the complexity of Form 1065, but
still give each of you credit for social security earnings on which retirement benefits, disability benefits, survivor benefits, and insurance (Medicare) benefits
are based. In most cases, this election
will not increase the total tax owed on
the joint return.
Jointly owned property. You and your
spouse must operate a business to make
this election. Do not make the election
for jointly owned property that is not a
trade or business.
Only businesses that are owned
and operated by spouses as
CAUTION co-owners (and not in the name
of a state law entity) qualify for the election. Thus, a business owned and operated by spouses through an LLC does
not qualify for the election of a qualified
joint venture.

!

Making the election. To make this
election, divide all items of income,
gain, loss, deduction, and credit attributable to the business between you and
your spouse based on your respective interests in the business. Each of you must
file a separate Schedule C or F. Enter
your share of the applicable income, deduction, or (loss) on the appropriate
lines of your separate Schedule C or F.
Each of you may also need to file a separate Schedule SE to pay self-employment tax. If the business was taxed as a
partnership before you made the election, the partnership will be treated as
terminating at the end of the preceding
tax year. For information on how to report the termination of the partnership,
see Pub. 541.
Revoking the election. The election
can be revoked only with the permission
of the IRS. However, the election remains in effect only for as long as you
and your spouse continue to meet the requirements to make the election. If you
and your spouse fail to meet the requirements for any year, you will need to
make a new election to be treated as a
qualified joint venture in any future
year.

Employer
identification
number
(EIN). You and your spouse do not
need to obtain an EIN to make the election. But you may need an EIN to file
other returns, such as employment or excise tax returns. To apply for an EIN, see
the Instructions for Form SS-4 or go to
IRS.gov/EIN.
Rental real estate business. If you and
your spouse make the election for your
rental real estate business, you must
each report your share of income and
deductions on Schedule E. Rental real
estate income is not generally included
in net earnings from self-employment
subject to self-employment tax and is
generally subject to the passive loss limitation rules. Electing qualified joint
venture status does not alter the application of the self-employment tax or the
passive loss limitation rules.
More information. For more information on qualified joint ventures, go to
IRS.gov/QJV.
Community Income
If you and your spouse wholly own an
unincorporated business as community
property under the community property
laws of a state, foreign country, or U.S.
territory, you can treat your wholly
owned, unincorporated business as a
sole proprietorship, instead of a partnership. Any change in your reporting position will be treated as a conversion of
the entity.
Report your income and deductions
as follows.
• If only one spouse participates in
the business, all of the income from that
business is the self-employment earnings of the spouse who carried on the
business.
• If both spouses participate, the income and deductions are allocated to the
spouses based on their distributive
shares.
• If either or both spouses are partners in a partnership, see Pub. 541.
• If both spouses elected to treat the
business as a qualifying joint venture,
see Qualified Joint Venture, earlier.
States with community property laws
include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin. See Pub.
555 for more information about community property laws.

Reportable Transaction
Disclosure Statement
Use Form 8886 to disclose information
for each reportable transaction in which
you participated. Form 8886 must be
filed for each tax year that your federal
income tax liability is affected by your
participation in the transaction. You may
have to pay a penalty if you are required
to file Form 8886 but do not do so. You
may also have to pay interest and penalties on any reportable transaction understatements. The following are reportable
transactions.
• Any listed transaction that is the
same as or substantially similar to tax
avoidance transactions identified by the
IRS.
• Any transaction offered to you or a
related party under conditions of confidentiality for which you paid an advisor
a fee of at least $50,000.
• Certain transactions for which you
or a related party have contractual protection against disallowance of the tax
benefits.
• Certain transactions resulting in a
loss of at least $2 million in any single
tax year or $4 million in any combination of tax years. (At least $50,000 for a
single tax year if the loss arose from a
foreign currency transaction defined in
section 988(c)(1), whether or not the
loss flows through from an S corporation or partnership.)
• Certain transactions of interest entered into that are the same or substantially similar to one of the types of transactions that the IRS has identified by
published guidance as a transaction of
interest.
See the Instructions for Form 8886
for more details.

Capital Construction Fund
Do not claim on Schedule C the deduction for amounts contributed to a capital
construction fund set up under chapter 535 of title 46 of the United States
Code. Instead, reduce the amount you
would otherwise enter on Form 1040 or
1040-SR, line 15, by the amount of the
deduction. Next to line 15, enter “CCF”
and the amount of the deduction. For details, see Pub. 595.

Additional Information
See Pub. 334 for more information for
small businesses.

Specific
Instructions
Filers of Form 1041. Do not complete
the block labeled “Social security number (SSN).” Instead, enter the EIN issued to the estate or trust on line C.

Line A
Describe the business or professional activity that provided your principal
source of income reported on line 1. If
you owned more than one business,
complete a separate Schedule C for each
business. Give the general field or activity and the type of product or service. If
your general field or activity is wholesale or retail trade, or services connected
with production services (mining, construction, or manufacturing), also give
the type of customer or client; for example, “wholesale sale of hardware to retailers” or “appraisal of real estate for
lending institutions.”

Line B
Enter on line B the six-digit code from
the Principal Business or Professional
Activity Codes chart at the end of these
instructions. For nonstore retailers, select the PBA code by the primary product that your establishment sells. For example, establishments primarily selling
prescription and non-prescription drugs,
select PBA code 456110 Pharmacies &
drug retailers.

Line D
Enter on line D the EIN that was issued
to you on Form SS-4. Do not enter your
SSN on this line. Do not enter another
taxpayer's EIN (for example, from any
Forms 1099-MISC that you received). If
you do not have an EIN, leave line D
blank.
You need an EIN only if you have a
qualified retirement plan or are required
to file employment, excise, alcohol, tobacco, or firearms returns, or are a payer
of gambling winnings. If you need an
EIN, see the Instructions for Form SS-4.
Single-member LLCs. If you are the
sole owner of an LLC that is not treated
as a separate entity for federal income
tax purposes, enter on line D the EIN
that was issued to the LLC (in the LLC's

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legal name) for a qualified retirement
plan, to file employment, excise, alcohol, tobacco, or firearms returns, or as a
payer of gambling winnings. If you do
not have such an EIN, leave line D
blank.

Line E
Enter your business address. Show a
street address instead of a box number.
Include the suite or room number, if any.
If you conducted the business from your
home located at the address shown on
page 1 of your tax return, you do not
have to complete this line.

Line F
Generally, you can use the cash method,
an accrual method, or any other method
permitted by the Internal Revenue Code.
In all cases, the method used must clearly reflect income. Unless you are a small
business taxpayer (defined later under
Part III), you must use an accrual method for sales and purchases of inventory
items. Special rules apply to long-term
contracts (see section 460 for details).
See also Rev. Proc. 2022-9 for changes
in accounting periods and methods of
accounting, available at IRS.gov/irb/
2022-02_IRB#REV-PROC-2022-9.
If you use the cash method, show all
items of taxable income actually or constructively received during the year (in
cash, property, or services). Income is
constructively received when it is credited to your account or set aside for you
to use. Also, show amounts actually paid
during the year for deductible expenses.
However, if the payment of an expenditure creates an asset having a useful life
that extends beyond 12 months or the
end of the next tax year, it may not be
deductible or may be deductible only in
part for the year of the payment. See
chapter 2 of Pub. 334, Tax Guide for
Small Business.
For amounts includible in income and
deductible as expense under an accrual
method, see Pub. 538.
To change your accounting method,
you must generally file Form 3115. You
may also have to make an adjustment to
prevent amounts of income or expense
from being duplicated or omitted. This
is called a section 481(a) adjustment.

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Example. You change to the cash
method of accounting and choose to account for inventoriable items in the same
manner as non-incidental materials and
supplies for the 2023 tax year. You accrued sales in 2022 for which you received payment in 2023. You must report those sales in both years as a result
of changing your accounting method
and must make a section 481(a) adjustment to prevent duplication of income.
A net negative section 481 adjustment is generally taken into account in
the year of change. A net positive section 481(a) adjustment is generally taken
into account over a period of 4 years. Include any net positive section 481(a) adjustments on line 6. If the net section
481(a) adjustment is negative, report it
in Part V.
More information. For more information about changing your accounting
method and the section 481(a) adjustment, see the Instructions for Form
3115. Additional information is also
available in various revenue procedures.
See Rev. Proc. 2022-14 (and any subsequent revenue procedures modifying
Rev. Proc. 2022-14) for a list of automatic changes, including a description
of its effect on prior lists of automatic
changes. Rev. Proc. 2022-14 is available
IRS.gov/irb/2022-07_IRB#REVat
PROC-2022-14.

Line G
If your business activity is not a rental
activity and you meet any of the material participation tests, explained next, or
the exception for oil and gas applies,
check the “Yes” box. Otherwise, check
“No.” If you check “No,” this activity is
passive. If you have a loss from a passive activity, see Limit on losses, later. If
you have a profit from the rental of
property to a nonpassive activity, see
Recharacterization of Passive Income in
Pub. 925 to find out how to report the
net income.
Material participation. For purposes
of the seven material participation tests
listed later, participation generally includes any work you did in connection
with an activity, if you owned an interest
in the activity at the time you did the
work. The capacity in which you did the
work does not matter. However, work is
not treated as participation if it is work

that an owner would not customarily do
in the same type of activity and one of
your main reasons for doing the work
was to avoid the disallowance of losses
or credits from the activity under the
passive activity rules.
Work you did as an investor in an activity is not treated as participation unless you were directly involved in the
day-to-day management or operations of
the activity. Work performed as an investor includes:
• Studying and reviewing financial
statements or reports on the activity,
• Preparing or compiling summaries
or analyses of the finances or operations
of the activity for your own use, and
• Monitoring the finances or operations of the activity in a nonmanagerial
capacity.
Participation by your spouse during
the tax year in an activity in which you
own an interest can be counted as your
participation in the activity. This rule applies even if your spouse did not own an
interest in the activity and whether or
not you and your spouse file a joint return. However, this rule does not apply
for purposes of determining whether you
and your spouse can elect to have your
business treated as a qualified joint venture instead of a partnership (see Qualified Joint Venture, earlier).
For purposes of the passive activity
rules, you materially participated in the
operation of a trade or business activity
during 2023 if you met any of the following seven tests.
1. You participated in the activity
for more than 500 hours during the tax
year.
2. Your participation in the activity
for the tax year was substantially all of
the participation in the activity of all individuals (including individuals who did
not own any interest in the activity) for
the tax year.
3. You participated in the activity
for more than 100 hours during the tax
year, and you participated at least as
much as any other person for the tax
year. This includes individuals who did
not own any interest in the activity.
4. The activity is a significant participation activity for the tax year, and
you participated in all significant participation activities for more than 500 hours
during the year. An activity is a “signifi-

cant participation activity” if it involves
the conduct of a trade or business, you
participated in the activity for more than
100 hours during the tax year, and you
did not materially participate under any
of the material participation tests (other
than this test 4).
5. You materially participated in the
activity for any 5 of the prior 10 tax
years.
6. The activity is a personal service
activity in which you materially participated for any 3 prior tax years. A personal service activity is an activity that
involves performing personal services in
the field of health, law, engineering, architecture, accounting, actuarial science,
performing arts, or consulting, or any
other trade or business in which capital
is not a material income-producing factor.
7. Based on all the facts and circumstances, you participated in the activity
on a regular, continuous, and substantial
basis for more than 100 hours during the
tax year. Your participation in managing
the activity does not count in determining if you meet this test if any person
(except you) (a) received compensation
for performing management services in
connection with the activity, or (b) spent
more hours during the tax year than you
spent performing management services
in connection with the activity (regardless of whether the person was compensated for the services).
Rental of personal property. Generally, a rental activity (such as long-term
equipment leasing) is a passive activity
even if you materially participated in the
activity. However, if you met any of the
five exceptions listed under Rental Activities in the Instructions for Form
8582, the rental of the property is not
treated as a rental activity and the material participation rules explained earlier
apply.
Exception for oil and gas. If you are
filing Schedule C to report income and
deductions from an oil or gas well in
which you own a working interest directly or through an entity that does not
limit your liability, check the “Yes” box.
The activity of owning a working interest is not a passive activity, regardless of
your participation.
Limit on losses. Your business activity
loss may be limited if you checked the

“No” box on line G. In addition, your
rental activity loss may be limited even
if you materially participated. In general, a business activity in which you do
not materially participate or a rental activity is a passive activity and you have
to use Form 8582 to apply a limitation
that may reduce the loss, if any, that you
may enter on Schedule C, line 31. For
details, see Pub. 925.
Note. Line G doesn't apply to filers of
Form 1040-SS.

Line H
If you started or acquired this business
in 2023, check the box on line H. Also,
check the box if you are reopening or restarting this business after temporarily
closing it, and you did not file a 2022
Schedule C for this business.

Line I
If you made any payment in 2023 that
would require you to file any Forms
1099, check the “Yes” box. Otherwise,
check the “No” box.
You may have to file information returns for wages paid to employees, certain payments of fees and other nonemployee compensation, interest, rents,
royalties, real estate transactions, annuities, and pensions. You may also have to
file an information return if you sold
$5,000 or more of consumer products to
a person on a buy-sell, a deposit-commission, or other similar basis for resale.
Note. Line I doesn't apply to filers of
Form 1040-SS.
The Guide to Information ReTIP turns in the 2023 General Instructions for Certain Information Returns identifies which Forms
1099 must be filed, the amounts to report, and the due dates for the required
Forms 1099.

Part I. Income
Except as otherwise provided in the Internal Revenue Code, gross income includes income from whatever source derived. In certain circumstances, however, gross income does not include extraterritorial income that is qualifying foreign trade income. Use Form 8873 to

figure the extraterritorial income exclusion. Report it on Schedule C as explained in the Instructions for Form
8873.
If you were a debtor in a chapter 11
bankruptcy case during 2023, see Chapter 11 Bankruptcy Cases in the Instructions for Form 1040 (under Income) and
the Instructions for Schedule SE.
Be sure to report all income attributable to your trade or business from all
sources. You may receive one or more
Forms 1099 from people who are required to provide information to the IRS
listing amounts that may be income you
received as a result of your trade or business activities. The following is a list of
some of the common Forms 1099.
• 1099-MISC. For more information
about what is reported on Form
1099-MISC, see the Instructions for Recipient included on that form.
• 1099-NEC. For more information
about what is reported on Form
1099-NEC, see the Instructions for Recipient included on that form.
• 1099-K. For more information
about what is reported on Form 1099-K,
see the Instructions for Payee included
on that form and go to IRS.gov/Gig.
Income you report on Sched-

TIP ule C may be qualified business
income and entitle you to a deduction on Form 1040 or 1040-SR,
line 13. See Forms 8995 and 8995-A,
and
IRS.gov/Newsroom/Facts-Aboutthe-Qualified-Business-IncomeDeduction.

Line 1
Enter gross receipts from your trade or
business. Be sure to check any Forms
1099 you received for business income
that must be reported on this line.
If you received one or more Forms
1099-NEC, be sure line 1 includes
amounts properly shown on your Forms
1099-NEC. If the total amounts that
were reported in box 1 of Forms
1099-NEC are more than the total you
are reporting on line 1, attach a statement explaining the difference.
Statutory employees. If you received a
Form W-2, Wage and Tax Statement,
and the "Statutory employee" box in
box 13 of that form was checked, report
your income and expenses related to that

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income on Schedule C. Enter your statutory employee income from box 1 of
Form W-2 on line 1 of Schedule C and
check the box on that line. Social security and Medicare tax should have been
withheld from your earnings; as a result,
you do not owe self-employment tax on
these earnings. Statutory employees include full-time life insurance agents,
certain agent or commission drivers and
traveling salespersons, and certain
homeworkers.
If you had both self-employment income and statutory employee income,
you must file two Schedules C. You cannot combine these amounts on a single
Schedule C.
Note. Statutory employees information doesn’t apply to Form 1040-SS filers.
Qualified joint ventures should
report rental real estate income
CAUTION not subject to self-employment
tax on Schedule E. See Qualified Joint
Venture, earlier, and the Instructions for
Schedule E.

!

Installment sales. Generally, the installment method cannot be used to report income from the sale of (a) personal
property regularly sold under the installment method, or (b) real property held
for resale to customers. But the installment method can be used to report income from sales of certain residential
lots and timeshares if you elect to pay
interest on the tax due on that income after the year of sale. See section 453(l)(2)
(B) for details. If you make this election,
include the interest in the total on
Schedule 2 (Form 1040), line 14, and
enter the amount of interest and “453(l)
(3)” on the line next to the entry space.
If you use the installment method, attach a statement to your return. Show
separately for 2023 and the 3 preceding
years: gross sales, cost of goods sold,
gross profit, percentage of gross profit to
gross sales, amounts collected, and gross
profit on amounts collected.

Line 2
Report your sales returns and allowances as a positive number on line 2. A
sales return is a cash or credit refund
you gave to customers who returned defective, damaged, or unwanted products.

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A sales allowance is a reduction in the
selling price of products, instead of a
cash or credit refund.

Line 6
Report on line 6 business income not reported elsewhere in Part I. Be sure to include amounts from the following.
• Finance reserve income.
• Scrap sales.
• Bad debts you recovered.
• Interest (such as on notes and
accounts receivable).
• State gasoline or fuel tax refunds
you received in 2023.
• Any amount of credit for biofuel
claimed on line 3 of Form 6478.
• Any amount of credit for biodiesel,
renewable diesel, and sustainable
aviation fuel claimed on line 11 of Form
8864.
• Credit for federal tax paid on fuels
claimed on your 2022 Form 1040 or
1040-SR.
• Prizes and awards related to your
trade or business.
• Amounts you received in your
trade or business as shown on Form
1099-PATR.
• The amount of any payroll tax
credit taken by an employer for qualified
paid sick leave and qualified paid family
leave under the Families First
Coronavirus Response Act (FFCRA),
and the American Rescue Plan Act of
2021 (ARP). See Form 941, lines 11b,
11d, 13c, and 13e, and Form 944, lines
8b, 8d, 10d, and 10f. You must include
the full amount (both the refundable and
nonrefundable portions) of the credit for
qualified sick and family leave wages in
gross income for the tax year that
includes the last day of any calendar
quarter with respect to which a credit is
allowed.
Note. A credit is available only if the
leave was taken after March 31, 2020,
and before October 1, 2021, and only after the qualified leave wages were paid,
which might under certain circumstances not occur until a quarter after September 30, 2021, including quarters during 2023. Accordingly, all lines related
to qualified sick and family leave wages
remain on the employment tax returns
for 2023.
• Any amount of credit for COBRA
premium assistance. See your Form(s)

941 or Form 944 for 2023 for the
nonrefundable and refundable portions
of this credit that you claimed against
your employment taxes.
• Other kinds of miscellaneous
business income.
If the business use percentage of any
listed property (defined under Line 13,
later) dropped to 50% or less in 2023,
report on this line any recapture of excess depreciation, including any section
179 expense deduction. Use Part IV of
Form 4797 to figure the recapture. Also,
if the business use percentage drops to
50% or less on leased listed property
(other than a vehicle), include on this
line any inclusion amount. See chapter 5
of Pub. 946 to figure the amount.

Part II. Expenses
Capitalizing costs of producing property and acquiring property for resale. If you produced real or tangible
personal property or acquired real or
personal property for resale, you must
generally capitalize certain expenses in
inventory or other property. These expenses include the direct costs of the
property and any indirect costs properly
allocable to that property. Reduce the
amounts on lines 8 through 26, 27b, and
Part V by amounts capitalized. See Pub.
538 for a discussion of the uniform capitalization rules.
Exception for a small business taxpayer. A small business taxpayer (defined later under Part III) is not required
to capitalize certain expenses to inventory or other property. See Pub. 538 for
more details.
Exception for creative property. If
you are a freelance artist, author, or photographer, you may be exempt from the
capitalization rules. However, your personal efforts must have created (or reasonably be expected to create) the property. This exception does not apply to
any expense related to printing, photographic plates, motion picture films, videotapes, or similar items. These expenses are subject to the capitalization rules.
For details, see Uniform Capitalization
Rules in Pub. 538.

Line 9

Line 10

You can deduct the actual expenses of
operating your car or truck or take the
standard mileage rate. This is true even
if you used your vehicle for hire (such as
a taxicab). You must use actual expenses
if you used five or more vehicles simultaneously in your business (such as in
fleet operations). You can’t use actual
expenses for a leased vehicle if you previously used the standard mileage rate
for that vehicle.

Enter the total commissions and fees for
the tax year. Do not include commissions or fees that are capitalized or deducted elsewhere on your return.

You can take the standard mileage
rate for 2023 only if you:
• Owned the vehicle and used the
standard mileage rate for the first year
you placed the vehicle in service, or
• Leased the vehicle and are using
the standard mileage rate for the entire
lease period.
If you take the standard mileage rate:
• Multiply the number of business
miles driven by 65.5;
• Add to this amount your parking
fees and tolls; and
• Enter the total on line 9. Do not
deduct depreciation, rent or lease payments, or your actual operating expenses.
If you deduct actual expenses:
• Include on line 9 the business portion of expenses for gasoline, oil, repairs, insurance, license plates, etc.; and
• Show depreciation on line 13 and
rent or lease payments on line 20a.
For details, see chapter 4 of Pub. 463.
Information on your vehicle. If you
claim any car and truck expenses, you
must provide certain information on the
use of your vehicle by completing one
of the following.
1. Complete Schedule C, Part IV, if
(a) you are claiming the standard mileage rate, you lease your vehicle, or your
vehicle is fully depreciated; and (b) you
are not required to file Form 4562 for
any other reason. If you used more than
one vehicle during the year, attach a
statement with the information requested
in Schedule C, Part IV, for each additional vehicle.
2. Complete Form 4562, Part V, if
you are claiming depreciation on your
vehicle or you are required to file Form
4562 for any other reason (see Line 13,
later).

You must file Form 1099-NEC to report certain commissions and fees of
$600 or more during the year. See the
Instructions for Forms 1099-MISC and
1099-NEC for details.
Sales of property. Generally, commissions and other fees paid to facilitate the
sale of property must be capitalized.
However, if you are a dealer in property,
enter on line 10 the commissions and
fees you paid to facilitate the sale of that
property.
Note. A dealer in property is a person
who regularly sells property in the ordinary course of their trade or business.
For more information on the capitalization of commissions and fees, see the
examples under Regulations section
1.263(a)-1(e).

Line 11
Enter the total cost of contract labor for
the tax year. Contract labor includes
payments to persons you do not treat as
employees (for example, independent
contractors) for services performed for
your trade or business. Do not include
contract labor deducted elsewhere on
your return, such as contract labor includible on line 17, 21, 26, or 37. Also,
do not include salaries and wages paid
to your employees; instead, see Line 26,
later.
You must file Form 1099-NEC to report contract labor payments of $600 or
more during the year. See the Instructions for Forms 1099-MISC and
1099-NEC for details.

Line 12
Enter your deduction for depletion on
this line. If you have timber depletion,
attach Form T (Timber). See chapter 9
of Pub. 535 for 2022, a prior year version, for details.

Line 13
Depreciation and section 179 expense
deduction. Depreciation is the annual
deduction allowed to recover the cost or

other basis of business or investment
property having a useful life substantially beyond the tax year. You can also depreciate improvements made to leased
business property. However, stock in
trade, inventories, and land are not depreciable. Depreciation starts when you
first use the property in your business or
for the production of income. It ends
when you take the property out of service, deduct all your depreciable cost or
other basis, or no longer use the property
in your business or for the production of
income. You can also elect under section
179 to expense part or all of the cost of
certain property you bought in 2023 for
use in your business. See the Instructions for Form 4562 and Pub. 946 to figure the amount to enter on line 13.
When to attach Form 4562. You must
complete and attach Form 4562 only if
you are claiming:
• Depreciation on property placed in
service during 2023;
• Depreciation on listed property
(defined later), regardless of the date it
was placed in service; or
• A section 179 expense deduction.
If you acquired depreciable property
for the first time in 2023, see Pub. 946.
Listed property. Listed property generally includes but is not limited to:
• Passenger automobiles weighing
6,000 pounds or less;
• Any other property used for transportation if the nature of the property
lends itself to personal use, such as motorcycles, pickup trucks, etc.; and
• Any property used for entertainment or recreational purposes (such as
photographic, phonographic, communication, and video recording equipment).
Exception. Listed property does not
include photographic, phonographic,
communication, or video equipment
used exclusively in your trade or business or at your regular business establishment. For purposes of this exception,
a portion of your home is treated as a
regular business establishment only if
that portion meets the requirements under section 280A(c)(1) for deducting expenses for the business use of your
home.
Recapture. See Line 6, earlier, if the
business use percentage of any listed
property dropped to 50% or less in 2023.

C-7

Line 14
Deduct contributions to employee benefit programs that are not an incidental
part of a pension or profit-sharing plan
included on line 19. Examples are accident and health plans, group-term life
insurance, and dependent care assistance
programs. If you made contributions on
your behalf as a self-employed person to
a dependent care assistance program,
complete Form 2441, Parts I and III, to
figure your deductible contributions to
that program.
You cannot deduct contributions you
made on your behalf as a self-employed
person for group-term life insurance.
Do not include on line 14 any contributions you made on your behalf as a
self-employed person to an accident and
health plan. However, you may be able
to deduct on Schedule 1 (Form 1040),
line 17, the amount you paid for health
insurance on behalf of yourself, your
spouse, and dependents, even if you do
not itemize your deductions. See the instructions for line 17, Schedule 1, contained within the Instructions for Form
1040.
You must reduce your line 14 deduction by the amount of any credit for
small employer health insurance premiums determined on Form 8941. See
Form 8941 and its instructions to determine which expenses are eligible for the
credit.

Line 15
Deduct premiums paid for business insurance on line 15. Deduct on line 14
amounts paid for employee accident and
health insurance. Do not deduct amounts
credited to a reserve for self-insurance
or premiums paid for a policy that pays
for your lost earnings due to sickness or
disability. For details, see Pub. 334,
chapter 8.

Lines 16a and 16b
Interest allocation rules. The tax treatment of interest expense differs depending on its type. For example, home
mortgage interest and investment interest are treated differently. “Interest allocation” rules require you to allocate
(classify) your interest expense so it is
deducted (or capitalized) on the correct

C-8

line of your return and receives the right
tax treatment. These rules could affect
how much interest you are allowed to
deduct on Schedule C.
Generally, you allocate interest expense by tracing how the proceeds of the
loan were used. See chapter 4 of Pub.
535 for 2022, a prior year version, for
details.
Limitation on business interest. You
must file Form 8990 to deduct any interest expenses of this trade or business unless you are a small business taxpayer
(defined under Part III) or meet one of
the other filing exceptions listed in the
Instructions for Form 8990.
If you must file Form 8990, figure
the limit on your business interest expenses on Form 8990 before completing
lines 16a and 16b. Follow the instructions under How to report, later, but report the reduced interest on lines 16a
and 16b. The interest you can't deduct
this year will carry forward to next year
on Form 8990.
If you are a small business taxpayer
or meet one of the other filing exceptions for Form 8990, follow the instructions under How to report, later, and report all of your deductible interest on
lines 16a and 16b.
How to report. If you have a mortgage
on real property used in your business,
enter on line 16a the interest you paid
for 2023 to banks or other financial institutions for which you received a Form
1098 (or similar statement). If you did
not receive a Form 1098, enter the interest on line 16b.
If you paid more mortgage interest
than is shown on Form 1098, see chapter 4 of Pub. 535 for 2022, a prior year
version, to find out if you can deduct the
additional interest. If you can, include
the amount on line 16a. Attach a statement to your return explaining the difference and enter “See attached” in the
margin next to line 16a.
The Tax Cuts and Jobs Act, section 11043, limited the deducCAUTION tion for mortgage interest paid
on home equity loans and lines of credit.
See section 163(h)(3)(F).

!

If you and at least one other person
(other than your spouse if you file a joint
return) were liable for and paid interest
on the mortgage and the other person re-

ceived the Form 1098, include your
share of the interest on line 16b. Attach
a statement to your return showing the
name and address of the person who received the Form 1098. In the margin
next to line 16b, enter “See attached.”
If you paid interest in 2023 that also
applies to future years, deduct only the
part that applies to 2023.

Line 17
Include on this line fees charged by accountants and attorneys that are ordinary
and necessary expenses directly related
to operating your business.
Include fees for tax advice related to
your business and for preparation of the
tax forms related to your business. Also,
include expenses incurred in resolving
asserted tax deficiencies related to your
business.
For more information, see Pub. 334.

Line 18
Include on this line your expenses for
office supplies and postage.

Line 19
Enter your deduction for the contributions you made for the benefit of your
employees to a pension, profit-sharing,
or annuity plan (including SEP, SIMPLE, and SARSEP plans described in
Pub. 560). If the plan included you as a
self-employed person, enter the contributions made as an employer on your
behalf on Schedule 1 (Form 1040),
line 16, not on Schedule C.
This deduction may be subject to limitations. For more information on potential limitations, see Pub. 560.
In most cases, you must file the applicable form listed below if you maintain a pension, profit-sharing, or other
funded-deferred compensation plan. The
filing requirement is not affected by
whether or not the plan qualified under
the Internal Revenue Code, or whether
or not you claim a deduction for the current tax year. There is a penalty for failure to timely file these forms.
Form 5500-EZ. File this form if you
have a one-participant retirement plan
that meets certain requirements. A
one-participant plan is a plan that covers
only you (or you and your spouse).

Form 5500-SF. File this form electronically with the Department of Labor (at
efast.dol.gov) if you have a small plan
(fewer than 100 participants in most cases) that meets certain requirements.
Form 5500. File this form electronically with the Department of Labor (at
efast.dol.gov) for a plan that does not
meet the requirements for filing Form
5500-EZ or Form 5500-SF.
For details, see Pub. 560.

Lines 20a and 20b
If you rented or leased vehicles, machinery, or equipment, enter on line 20a the
business portion of your rental cost. But
if you leased a vehicle for a term of 30
days or more, you may have to reduce
your deduction by the inclusion amount.
See Leasing a Car in chapter 4 of Pub.
463 to figure this amount.
Enter on line 20b amounts paid to
rent or lease other property, such as office space in a building.

Line 21
Deduct the cost of incidental repairs and
maintenance that do not add to the property's value or appreciably prolong its
life. Do not deduct the value of your
own labor. Do not deduct amounts spent
to restore or replace property; they must
be capitalized.

Line 22
In most cases, you can deduct the cost of
materials and supplies only to the extent
you actually consumed and used them in
your business during the tax year (unless
you deducted them in a prior tax year).
However, if you had incidental materials
and supplies on hand for which you kept
no inventories or records of use, you can
deduct the cost of those you actually
purchased during the tax year, provided
that method clearly reflects income.
You can also deduct the cost of
books, professional instruments, equipment, etc., if you normally use them
within a year. However, if their usefulness extends substantially beyond a
year, you must generally recover their
costs through depreciation.

Line 23

• Other taxes and license fees not related to your business.

You can deduct the following taxes and
licenses on this line.
• State and local sales taxes imposed
on you as the seller of goods or services.
If you collected this tax from the buyer,
you must also include the amount collected in gross receipts or sales on
line 1.
• Real estate and personal property
taxes on business assets.
• Licenses and regulatory fees for
your trade or business paid each year to
state or local governments. But some licenses, such as liquor licenses, may
have to be amortized. See the Instructions for Form 4562, Depreciation and
Amortization, for more information on
amortization.
• Social security and Medicare taxes
paid to match required withholding from
your employees’ wages. Reduce your
deduction by the amount shown on
Form 8846, line 4.
• Federal unemployment tax paid.
• Federal highway use tax.
• Contributions to a state unemployment insurance fund or disability benefit
fund if they are considered taxes under
state law.

Do not reduce your deduction
for social security and MediCAUTION care taxes by the nonrefundable
and refundable portions of the credit for
sick and family leave wages that you
claimed on Form 944 or Form(s) 941.
Instead, you must report your credit for
qualified sick and family leave wages as
income on line 6.

Do not deduct the following.
• Federal income taxes, including
your self-employment tax. However,
you can deduct one-half of your self-employment tax on Schedule 1 (Form
1040), line 15 (but if filing Form
1040-NR, then only when covered under
the U.S. social security system due to an
international social security agreement).
• Estate and gift taxes.
• Taxes assessed to pay for improvements, such as paving and sewers.
• Taxes on your home or personal
use property.
• State and local sales taxes on property purchased for use in your business.
Instead, treat these taxes as part of the
cost of the property.
• State and local sales taxes imposed
on the buyer that you were required to
collect and pay over to state or local
governments. These taxes are not included in gross receipts or sales nor are
they a deductible expense. However, if
the state or local government allowed
you to retain any part of the sales tax
you collected, you must include that
amount as income on line 6.

!

Line 24a
Enter your expenses for lodging and
transportation connected with overnight
travel for business while away from
your tax home. In most cases, your tax
home is your main place of business, regardless of where you maintain your
family home. You can’t deduct expenses
paid or incurred in connection with employment away from home if that period
of employment exceeds 1 year. Also,
you cannot deduct travel expenses for
your spouse, your dependent, or any other individual unless that person is your
employee, the travel is for a bona fide
business purpose, and the expenses
would otherwise be deductible by that
person.
Do not include expenses for meals on
this line. Instead, see Line 24b, later. Do
not include entertainment expenses on
this line.
Instead of keeping records of your
actual incidental expenses, you can use
an optional method for deducting incidental expenses only if you did not pay
or incur meal expenses on a day you
were traveling away from your tax
home. The amount of the deduction is
$5 a day. Incidental expenses include
fees and tips given to porters, baggage
carriers, bellhops, hotel maids, stewards
or stewardesses and others on ships, and
hotel servants in foreign countries. They
do not include expenses for laundry,
cleaning and pressing of clothing, lodging taxes, or the costs of telegrams or
telephone calls. You cannot use this
method on any day that you use the
standard meal allowance (as explained
under Line 24b, later).
You can’t deduct expenses for attending a convention, seminar, or similar
meeting held outside the North American area unless the meeting is directly

C-9

related to your trade or business and it is
as reasonable for the meeting to be held
outside the North American area as
within it. These rules apply to both employers and employees. Other rules apply to luxury water travel.
For details on travel expenses, see
chapter 1 of Pub. 463.

Line 24b
Enter your deductible business meal expenses. This includes expenses for meals
while traveling away from home for
business. Your deductible business meal
expenses are a percentage of your actual
business meal expenses or standard meal
allowance. See Amount of deduction,
later, for the percentage that applies to
your actual meal expenses or standard
meal allowance. In most cases, the percentage is 50%.
Do not include entertainment expenses on this line.
Business meal expenses. You can deduct a percentage of the actual cost of a
meal if the following conditions are met.
• The meal expense was an ordinary
and necessary expense in carrying on
your trade or business.
• The expense was not lavish or extravagant under the circumstances.
• You or your employee was present
at the meal.
• The meal was provided to a current or potential business customer, client, consultant, or similar business contact.
• In the case of food or beverages
provided during or at an entertainment
event, the food and beverages were purchased separately from the entertainment, or the cost of the food and beverages was stated separately from the cost
of the entertainment on one or more
bills, invoices, or receipts.
You cannot avoid the entertainment disallowance rule by inCAUTION flating the amount charged for
food and beverages.

!

See Notice 2021-25 for examples and
more information. Notice 2021-25 is
available
at
IRS.gov/irb/
2021-17_IRB#NOT-2021-25.
Standard meal allowance. Instead of
deducting the actual cost of your meals
while traveling away from home, you
can use the standard meal allowance for

C-10

your daily meals and incidental expenses. Under this method, you deduct a
specified amount, depending on where
you travel, instead of keeping records of
your actual meal expenses. However,
you must still keep records to prove the
time, place, and business purpose of
your travel.
The standard meal allowance is the
federal meals and incidental expenses
(M&IE) rate. You can find these rates
for locations inside and outside the continental United States by going to the
General Services Administration's website at GSA.gov/travel/plan-book/perdiem-rates/mie-breakdown.
See chapter 2 of Pub. 463 for details
on how to figure your deduction using
the standard meal allowance, including
special rules for partial days of travel.
For special per diem rates and rules of
high cost locales, see IRS.gov/irb/
2021-38_IRB#NOT-2021-52.
Amount of deduction. For business
meals, you can deduct 50% of your business meal expenses, including meals incurred while away from home on business. However, for individuals subject to
the Department of Transportation (DOT)
hours of service limits, the percentage
for other business meals is increased to
80% for business meals consumed during, or incident to, any period of duty for
which those limits are in effect. Individuals subject to the DOT hours of service
limits include the following.
• Certain air transportation workers
(such as pilots, crew, dispatchers, mechanics, and control tower operators)
who are under Federal Aviation Administration regulations.
• Interstate truck operators who are
under DOT regulations.
• Certain merchant mariners who are
under Coast Guard regulations.
However, you can fully deduct meals
and incidentals furnished or reimbursed
to an employee if you properly treat the
expense as wages subject to withholding. You can also fully deduct meals and
incidentals provided to a nonemployee
to the extent the expenses are includible
in the gross income of that person and
reported on Form 1099-NEC. See chapter 5 of Pub. 15 (Circular E), Employer’s
Tax Guide, for details and other exceptions. See also chapter 8 of Pub. 334.

Daycare providers. If you qualify as a
family daycare provider, you can use the
standard meal and snack rates, instead of
actual costs, to figure the deductible cost
of meals and snacks provided to eligible
children. If you receive reimbursement
under a food program of the Department
of Agriculture, only deduct the cost of
food that exceeds reimbursement, if any.
See Pub. 587 for details, including recordkeeping requirements.

Line 25
Deduct utility expenses only for your
trade or business.
Local telephone service. If you used
your home phone for business, do not
deduct the base rate (including taxes) of
the first phone line into your residence.
But you can deduct any additional costs
you incurred for business that are more
than the base rate of the first phone line.
For example, if you had a second line,
you can deduct the business percentage
of the charges for that line, including the
base rate charges.

Line 26
Enter the total salaries and wages for the
tax year reduced by the amount of the
following credit(s), if applicable.
• Work Opportunity Credit (Form
5884).
• Empowerment Zone Employment
Credit (Form 8844).
• Credit for Employer Differential
Wage Payments (Form 8932).
• Employer Credit for Paid Family
and Medical Leave (Form 8994).
Do not reduce your deduction for any
portion of a credit that was passed
through to you from a pass-through entity. See the instructions for the credit
form for more information.
Do not include salaries and wages deducted elsewhere on your return or
amounts paid to yourself.
If you provided taxable fringe
benefits to your employees,
CAUTION such as personal use of a car,
do not deduct as wages the amount applicable to depreciation and other expenses claimed elsewhere.

!

In most cases, you are required to file
Form W-2 for each employee. See the

General Instructions for Forms W-2 and
W-3.

Line 27b
Energy efficient commercial buildings
deduction. You may be able to deduct
part or all of the expenses of modifying
an existing commercial building to make
it energy efficient. For details, see Form
7205 and its instructions. Attach Form
7205 to your tax return.

Line 30
Business use of your home. You may
be able to deduct certain expenses for
business use of your home, subject to
limitations. To claim a deduction for
business use of your home, use Form
8829, or you can elect to determine the
amount of the deduction using a simplified method.
If you have a business use of another
home, you can’t use the simplified method for that home. You can use the Form
8829 to claim expenses for business use
of the other home.
For additional information about
claiming this deduction, see Pub. 587.
Note. Line 30 doesn't apply to filers of
Form 1040-SS.
If you are not using the simpli-

TIP fied method to determine the
amount of expenses you may
deduct for business use of a home, do
not complete the additional entry spaces
on line 30 for total square footage of
your home and of the part of the home
used for business. Instead, include the
amount from line 36 of your Form 8829
on line 30.
Simplified method. The simplified
method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will
figure your deduction by multiplying the
area (measured in square feet) used regularly and exclusively for business, regularly for daycare, or regularly for storage of inventory or product samples, by
$5. The area you use to figure your deduction cannot exceed 300 square feet.
You cannot use the simplified method to
figure a deduction for rental use of your
home.

Electing to use the simplified method. You choose whether or not to use
the simplified method each tax year.
Make the election by using the simplified method to figure the deduction for
the qualified business use of a home on
a timely filed, original federal income
tax return for that year. An election for a
year, once made, is irrevocable. A
change from using the simplified method in one year to actual expenses in a
succeeding year, or vice versa, is not a
change in method of accounting and
does not require the consent of the Commissioner.
If you share your home with someone
else who uses the home for a separate
business that qualifies for this deduction,
each of you may make your own election, but not for the same portion of the
home.
If you conduct more than one business that qualifies for this deduction in
your home, your election to use the simplified method applies to all your qualified business uses of your home. You are
limited to a maximum of 300 square feet
for all of the businesses you conduct in
your home that qualify for this deduction. Allocate the actual square footage
used (up to the maximum 300 square
feet) among your qualified business uses
in any reasonable manner you choose,
but you may not allocate more square
feet to a qualified business use than you
actually use in that business.
If you used your home for more
than one business, you will
CAUTION need to file a separate Schedule C for each business. Do not combine
your deductions for each business use
on a single Schedule C.

!

Business use of more than one
home. You may have used more than
one home in your business. If you used
more than one home for the same business during 2023, you may elect to use
the simplified method for only one
home; you must file a Form 8829 to
claim a business use of the home deduction for any additional home. If one or
more of the homes were not used for the
entire year (for example, you moved
during the year), see Part-year use or
area changes (for simplified method only), later, and Columns (a) and (b) in the
Instructions for Form 8829.

Other requirements must still be
met. You must still meet all the use requirements to claim a deduction for
business use of the home. The simplified
method is only an alternative to the calculation, allocation, and substantiation
of actual expenses. The simplified method is not an alternative to the exclusivity
and other tests that must be met in order
to qualify for this deduction. For more
information about qualifying business
uses, see Qualifying for a Deduction in
Pub. 587.
Gross
income
limitation. The
amount of your deduction is still limited
to the gross income derived from qualified business use of the home reduced
by the business deductions that are not
related to your use of the home. If this
limitation reduces the amount of your
deduction, you cannot carry over the difference to another tax year.
Carryover of actual expenses from
Form 8829. If you used Form 8829 in a
prior year, and you had actual expenses
that you could carry over to the next
year, you cannot claim those expenses if
you are using the simplified method. Instead, the actual expenses from Form
8829 that were not allowed will be carried over to the next year that you use
actual expenses to figure your deduction.
Depreciation of home. You cannot
deduct any depreciation (including any
additional first-year depreciation) or section 179 expense for the portion of your
home that is used in a qualified business
use if you figure the deduction for the
business use of your home using the
simplified method. The depreciation deduction allowable for that portion of the
home for that year is deemed to be zero.
Although you cannot deduct

TIP any depreciation or section 179
expense for the portion of your
home that is a qualified business use because you elect to use the simplified
method, you may still claim depreciation
or the section 179 expense deduction on
other assets (for example, furniture and
equipment) used in the qualified business use of your home.
Figuring your allowable expenses for
business use of the home. You will figure the deduction using Form 8829 or

C-11

Keep for Your Records

Simplified Method Worksheet
1.

Enter the amount of the gross income limitation. See the Instructions for the Simplified Method Worksheet (below) . . . . . . .

1.

2.

Allowable square footage for the qualified business use. Do not enter more than 300 square feet. See the Instructions for the
Simplified Method Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

3.

Simplified method amount
a.

Maximum allowable amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a.

b.

For daycare facilities not used exclusively for business, see the instructions for line 3b of this worksheet and enter the
decimal amount from the Daycare Facility Worksheet; otherwise, enter 1.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b.

c.

Multiply line 3a by line 3b and enter the result to 2 decimal places . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c.

4.

Multiply line 2 by line 3c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

5.

Allowable expenses using the simplified method. Enter the smaller of line 1 or line 4 here and include that amount on
Schedule C, line 30. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6.

$5

Carryover of unallowed expenses from a prior year that are not allowed in 2023.
a.

Operating expenses. Enter the amount from your last Form 8829, line 43 (line 42 if before 2018). See the Instructions for
the Simplified Method Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6a.

b.

Excess casualty losses and depreciation