Pennsylvania PA Schedule C - Profit or Loss From Business or Profession

PA Schedule C - Profit or Loss From Business or Profession
PA Schedule C - Profit or Loss From Business or Profession (Form and Instructions) (PA-40 C)
IMPORTANT: FILL IN FORM MUST BE DOWNLOADED ONTO YOUR COMPUTER PRIOR TO COMPLETING
2303110056

PA SCHEDULE C
START
HERE

➜

Profit or Loss from
Business or Profession
(Sole Proprietorship)

PA-40 C (EX) 08-23 (FI)
PA Department of Revenue

20

Include with Form PA-40 or PA-41

Name of owner as shown on PA tax return:

OFFICIAL USE ONLY

Owner’s Social
Security number
Product or service
C. Federal Employer Identification Number

t

t

t

A. Main business activity
B. Business name
D. Business address (number and street)
City, State, and ZIP Code
E. Method(s) used to value closing inventory. Fill in the appropriate oval:
(1)
Cost (2)
Lower of cost or market
(3)
Other (if other, attach explanation)
F. Accounting method. Fill in the appropriate oval:
(1)
Cash (2)
Accrual (3)
Other (specify)

t

t

C
Sales Tax License Number (if applicable)

. . . . . . . . . . . . . . . . . . . . . . Yes No

Federal NAICS Code

G. Was there any change in determining quantities, costs, or valuations . . . . . . . . . . . . . . . . . .
between opening and closing inventory? If “Yes,” submit explanation.
H. Did you deduct expenses for an office in your home? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I. If the business is out of existence, fill in this oval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SECTION I

INCOME

1. a. Gross receipts or sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a.
b. Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1b.
c. Balance (subtract Line 1b from Line 1a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1c.
2.

3. Gross profit (subtract Line 2 from Line 1c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Other Income (submit statement). Include interest from accounts receivable, business checking
accounts, and other business accounts. Also include sales of operational assets. . . . . . . . . . . . . . . .
5. Total income (add Lines 3 and 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

t

2. Cost of goods sold and/or operations (Schedule C-1, Line 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SECTION II

4.
5.

DEDUCTIONS

6. Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . .

28. Supplies (not included on Schedule C-1) . . . .

7. Amortization . . . . . . . . . . . . . . . . . . . . . . . . . .

29. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8. Bad debts from sales or services . . . . . . . . . .

30. Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9. Bank charges . . . . . . . . . . . . . . . . . . . . . . . . .

31. Travel and entertainment . . . . . . . . . . . . . . . .

10. Car and truck expenses . . . . . . . . . . . . . . . . .

32. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11. Commissions . . . . . . . . . . . . . . . . . . . . . . . . .

33. Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12. Cost depletion but not percentage depletion .

34. IDCs (1/3 current expensing) . . . . . . . . . . . . .

13. a.

Regular depreciation . . . . . . . . . . . . . . .

35. IDCs (amortization) . . . . . . . . . . . . . . . . . . . . .

13. b.

Section 179 expense . . . . . . . . . . . . . . .

36. Start-up costs (direct expense) . . . . . . . . . . . .

14. Dues and publications . . . . . . . . . . . . . . . . . . .

37. Other expenses (specify):

15. Employee benefit programs other than on Line 23

a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16. Freight (not included on Schedule C-1) . . . . .

b. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18. Interest on business indebtedness . . . . . . . . .

d. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19. Laundry and cleaning . . . . . . . . . . . . . . . . . . .

e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20. Legal and professional services . . . . . . . . . . .

f. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21. Management fees . . . . . . . . . . . . . . . . . . . . . .

g. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22. Office supplies . . . . . . . . . . . . . . . . . . . . . . . .

h. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23. Pension and profit-sharing plans for employees

i. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24. Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25. Rent on business property . . . . . . . . . . . . . . .
26. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

j. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37. Total other expenses . . . . . . . . . . . . . . . . . . . .
38. Total expenses. (add Lines 6 through 37) . . . .

27. Subcontractor fees . . . . . . . . . . . . . . . . . . . . .
39. Net profit or loss (subtract Line 38 from Line 5). If a net loss, fill in the oval. Enter the result on your PA tax return. . . . .Loss

39.

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2303210054

PA SCHEDULE C
Profit or Loss from
Business or Profession
(Sole Proprietorship)

PA-40 C (EX) 08-23 (FI)
PA Department of Revenue

START

Name of owner as shown on PA tax return:

20

OFFICIAL USE ONLY

Social Security Number

➜
SCHEDULE C-1 - Cost of Goods Sold and/or Operations
1. Inventory at beginning of year (if different from last year’s closing inventory, include explanation) . . . .
2.

a. Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2a.

b. Cost of items withdrawn for personal use . . . . . . . . . . .

2b.

1.

c. Balance (subtract Line 2b from Line 2a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2c.

3. Cost of labor (do not include salary paid to yourself or subcontractor fees) . . . . . . . . . . . . . . . .

3.

4. Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

5. Other costs (include schedule) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6. Add Lines 1, 2c, 3, 4, and 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7. Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Cost of goods sold and/or operations (subtract Line 7 from Line 6) Enter here and on Section I, Line 2 .

8.

t

7.

3. Balance (subtract Line 2 from Line 1). Enter here and on Section II, Line 13b. . . . . . . . . . . . . . . . . .
Description of property

Date acquired

Cost or other basis

(a)

(b)

(c)

Depreciation allowed or
allowable in prior years
(d)

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2. Less: Section 179 depreciation included in Schedule C-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

t

1. Total Section 179 depreciation (do not include in items below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

t

SCHEDULE C- 2 - Depreciation
Refer to Personal Income Tax Bulletin 2023-02 for information regarding depreciation. Pennsylvania PIT law does not conform to Federal law
to allow federal bonus depreciation. Note, an adjustment for depreciation expense and/or IRC §179 deduction may be required based upon
the treatment of the assets if they differ from federal to Pennsylvania for tax purposes. For assets where basis is different between federal and
PA, you must calculate depreciation expenses on a straight-line basis.

3.

Life
Method of calculating depreciation or rate
(f)
(e)

Depreciation for this year
(g)

MM/DD/YY

4. Other depreciation:
Buildings . . . . . . . . . . . .
Furniture and fixtures . . .
Transportation equipment
Machinery and other equipment

Other (specify) . . . . . . . .
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................
.......................

...............................

5.

6. Any depreciation included in Schedule C-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7. Balance (subtract Line 6 from Line 5). Enter here and on Section II, Line 13a. . . . . . . . . . . . . . . . . . . .

7.

t

5. Totals (add all Line 4 amounts) . . . . . .

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Instructions for PA-40 Schedule C

Profit or Loss from Business or Profession
(Sole Proprietorship)

PA-40 C IN (EX) 08-23

WHAT’S NEW
Section 179 Property Deduction - Act 53 of 2022 (Act 202253, P.L. 513, No. 53) amended the PA PIT law to increase
the PA PIT dollar limitation to match the FIT dollar limitation. The amendment applies to § 179 Property placed in
service in tax years beginning on or after January 1, 2023.
Refer to Personal Income Tax Bulletin 2023-02 for further
information.

OVERVIEW
Use PA Schedule C to report income or loss from a business
you operate or a profession you practice as a sole proprietor.
Your activity qualifies as a business if your primary purpose
for engaging in the activity is income or profit, you conduct
your activity with continuity and regularity, and you satisfy
the “Commercial Enterprise” test. Certain rental activity may
be business income and not rental income. If you are a sole
member of an LLC, complete PA Schedule C.

● Unless a loss results from an activity where a net profit
has not been realized in at least two years of a five
consecutive-year period, an owner may deduct all
losses from a business or profession in the taxable year
realized. Report all transactions directly related to your
business or profession on PA Schedule C.
● Do not use the installment method for sales of inventory
if you sell such inventory in the regular and ordinary
course of a business or profession. Include interest on
such sales in gross receipts.
Maintain separate books and records for PA PIT purposes
and file PA Schedule C. Even if you have no differences
between your federal and Pennsylvania expenses, you must
complete and include PA Schedule C to report your income
for Pennsylvania personal income tax purposes.

IMPORTANT DIFFERENCES BETWEEN
FEDERAL AND PENNSYLVANIA RULES

For additional information regarding the definition of a business
or profession, and for Pennsylvania’s requirements for reporting income and expenses, refer to the PA Personal Income Tax
Guide – Net Income or (Loss) from the Operation of a Business, Profession, or Farm section for additional information.

You may use any accounting method for PA purposes as
long as you apply your accounting methods consistently.
PA law does not have material participation rules. Report
all transactions that are directly related to your business
or profession on your PA Schedule C.

NOTE: Pennsylvania determines income and (loss)
under accepted accounting principles, systems, or
practices that are acceptable by standards of the accounting
profession and consistent with regulations of the department.

If you own or operate more than one business, you must
submit a separate PA Schedule C for each business operation.

● You may use any accounting method for PA purposes
as long as you apply your accounting methods consistently, it clearly reflects income, and is not inconsistent
with Pennsylvania law or regulations of the department.

SCHEDULE A
You may not deduct nonbusiness-related personal interest,
taxes, and casualty losses on any PA PIT return.

● PA law does not contain provisions for statutory employees. Federal statutory employees may be required to
report PA taxable income on Line 1a, PA-40, and use
PA Schedule UE to deduct expenses. However, you
may use PA Schedule C to provide the type and amount
of expenses that are included as Miscellaneous
Expenses on PA Schedule UE when there are similar
types of expenses for your occupation or position. In
such cases, the business will report the business name
and activity as “Schedule UE Miscellaneous Expenses”
with zero amounts reported as Gross receipts or sales
and Total income. You must also include “See PA
Schedule C for expenses” on Section III, Line 16 of PA
Schedule UE. If using PA Schedule C to report PA
Schedule UE expense types and amounts, you must
follow PA Schedule UE rules for allowable and unallowable expenses. See the PA Personal Income Tax Guide
– Gross Compensation section for more information.

The following federal schedules and instructions do not
apply for PA Schedule C:

SCHEDULE E
Report rental and royalty income on PA Schedule E unless
engaged in the business of making your property or rights
available in a public market place with intention to realize a
profit.
SCHEDULE F
Report farming activity on PA Schedule F.
SCHEDULE SE
Do not report self-employment taxes to Pennsylvania.
FORM 4562
If using bonus depreciation, do not use Form 4562. Use
Schedule C-2 on Side 2 of this schedule. For § 179 Property
placed in service before 2023, the PA PIT dollar limitation is
based upon earlier of the IRC § 179 dollar limitation at the
time the § 179 Property was placed in service or the IRC §
179 dollar limitation in effect in 2003. The applicable PA PIT
dollar limitations for those years are as follows:

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1

1997:
1998:
1999:
2000:
2001-02:
2003-22:

$18,000
$18,500
$19,000
$20,000
$24,000
$25,000

Act 53 of 2022 (Act 2022-53, P.L. 513, No. 53) amended
the PA PIT law to increase the PA PIT dollar limitation to
match the FIT dollar limitation. The amendment applies to
§ 179 Property placed in service in tax years beginning
on or after January 1, 2023. Refer to Personal Income Tax
Bulletin 2023-02.
FORM 4684
Report gain or (loss) from all business activity on PA Schedule
C. Include a casualty or theft loss of business property (or
gain, if insurance proceeds exceed the basis of the property
lost or taken) on Line 4 of PA Schedule C. You may refer to
the federal schedule for an explanation of gain or (loss)
items, but do not submit the federal schedule.
FORM 4797
Report other sales, exchanges, and involuntary conversions
of business property on Line 4 of PA Schedule C if the property sold was replaced. Refer to the federal schedule for an
explanation of gain/loss items, but do not submit the federal
schedule.
FORM 8271
Do not report or deduct any transactions related to tax
shelters.
FORM 8594
Report the acquisition or disposition of business assets on
Line 4 of PA Schedule C. Refer to the federal schedule for
an explanation for gain/loss items, but do not submit the
federal schedule.
FORM 8824
Do not report a like-kind exchange on PA Schedule C. PA
law does not have like-kind exchange provisions. You must
include the gain or loss from a sale, exchange or disposition
of a business asset on Line 4 of PA Schedule C if the transaction was a normal business transaction. You must report
any gain or loss from the sale of a nonbusiness asset or
property or the sale of a business or segment thereof on PA
Schedule D if the property sold was not replaced.
FORM 8829
Include your allowable expenses for the business use of
your home on Line 37 of PA Schedule C. Refer to the federal
schedule for an explanation of this expense, but do not submit the federal schedule. Pennsylvania does not recognize
the federal safe harbor method for determining the allowable
deduction for business use of a residence for Pennsylvania
Personal Income Tax purposes. All home office expenses
must be determined by using actual costs incurred.

OTHER PENNSYLVANIA AND FEDERAL
INCOME TAX DIFFERENCES
PA income from the operation of business generally differs
from the income determined for federal income tax purposes.
Further, Pennsylvania will no longer accept a PA Schedule
C-F Reconciliation for the purpose of adjusting the federal
2

business income to PA business income. Therefore, the
items which were previously included as additions to PA
income or expense on the PA Schedule C-F Reconciliation
should be included with the specific line of income or
expense on the PA Schedule C. In addition, those items
which Pennsylvania does not require be reported as income
or does not allow as expense in determining net business
income, which are allowed in the determination of net federal
business income should not be included in the specific
business income or expenses on PA Schedule C.
Examples of items that Pennsylvania requires as additions
to income include: any advance receipts for goods or services; working capital interest or dividend income including
federal-exempt interest and dividend income from obligations of other states; gains from the sale of business assets
where the property is replaced by similar property; gains
from like-kind exchanges; gains from involuntary conversions (such as those from IRC Section 1033); and gains
from the sale of property where PA basis is different than
federal basis.
Examples of items that Pennsylvania allows as additions to
expenses that require a reduction for federal tax purposes
include: meals, travel, and entertainment expense deduction
of 100 percent by Pennsylvania for the expenses incurred;
any differences in depreciation related to differences in basis
of assets, amount of allowable Section 179 expense, or
method of depreciation for federal or PA purposes; and any
other reductions in federal expenses allowed at 100 percent
for PA personal income tax purposes.
Examples of items that Pennsylvania requires as reductions
in federal income or expenses include: income taxes based
upon gross or net income; any differences in depreciation
related to differences in basis of assets, amount of allowable
Section 179 expense, or method of depreciation for federal
or PA purposes; recognition of cancellation of debt income;
recognition of income from IRC Section 481(a) spread
adjustments; payments for owner pension, profit-sharing
plans, deferred, or welfare benefit plans; percentage depletion; direct expensing of organizational expenses or syndication fees; losses from the sale of property where PA basis
is different than federal basis; and any other income or
expenses where there is a specialized federal treatment that
is not specifically addressed or allowed by PA personal
income tax law that might involve additional expensing,
expensing verses capitalization, carry back or carry forward
of losses, income recognition, or other special treatments.
Other differences between Pennsylvania and federal income
tax include the following:
IDCs. Special rules apply for the direct expensing of intangible drilling & development costs (IDCs). Up to one-third of
the amount of IDCs incurred in tax years beginning after
Dec. 31, 2013 may be directly expensed, with the remaining
amount amortized over 10 years. Taxpayers may also elect
to amortize the full amount of the IDCs over 10 years. The
election to expense any IDCs is made by including an
amount on Line 34 of PA Schedule C. Amortization of the
IDCs must be reported separately on Line 35 of PA Schedule
C. IDCs incurred prior to Jan. 1, 2014 must be amortized
over the life of the well.

PA-40 C

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Qualified Joint Ventures. Pennsylvania is not a community
property state. Therefore, for PA personal income tax
purposes, a taxpayer and the taxpayer’s spouse must each
report on a separate PA Schedule C their share of income
from a business entity they own that is considered a qualified
joint venture for federal income tax purposes.

LINE INSTRUCTIONS
IDENTIFICATION INFORMATION
Complete each line.
OWNER'S NAME
Enter the name of the business owner. If you are married
and you jointly owned the business with your spouse, you
must complete separate PA Schedule C’s. If you and your
spouse have separate business activities, complete separate
PA Schedule(s) C.
SALES TAX LICENSE NUMBER
Enter your Pennsylvania Sales Tax License Number if you
have one. Otherwise, leave this space blank.
FEDERAL NAICS CODE
Provide your Federal NAICS Code as identified on your
Federal Schedule C.
SOCIAL SECURITY NUMBER (SSN)
Enter the SSN of the business owner.

LINE A
MAIN BUSINESS ACTIVITY
Describe the business or professional activity that provided
your principal source of income for Line 1. Use the same
description you use for your Federal Schedule C. Enter the
principal business or professional code you use on your
Federal Schedule C.

LINE B
BUSINESS NAME
Enter the name of the business as you registered with the
IRS.

LINE C
TAXPAYER IDENTIFICATION NUMBERS
Enter the Federal Employer Identification Number (FEIN)
assigned to the business. If you do not have an FEIN for
your federal Schedule C, leave this space blank.

LINE D
BUSINESS ADDRESS
Enter the complete address of the business.

LINE G
INVENTORY CHANGES
Check “Yes” or “No” for this question. Submit an explanation
if necessary.

LINE H
OFFICE IN-HOME
Check “Yes” if you deduct expenses for an office in-home.
Check “No” if you do not deduct expenses for an office
in-home.

LINE I
OUT OF BUSINESS
If the business is out-of-existence at the end of the tax year
for which you are filing, fill in the oval.

SECTION I
INCOME
Use generally accepted accounting principles and practices
to maintain your books and records, and report your income
from your business or professional activity.

LINE 1a
GROSS RECEIPTS OR SALES
Include all amounts you received in operating your business
or profession. PA law does not contain provisions for statutory
employees. A statutory employee reports his or her PA taxable income on Line 1a, PA-40, and uses PA Schedule UE
to deduct his or her allowable employee business expenses.
INSTALLMENT SALES
You may use the installment method for sales of inventory.
Include interest on such sales in gross receipts.
LAND AND BUILDINGS
For PA purposes, you may not include the sales of land and
buildings on PA Schedule C unless the property sold is
replaced. When the property sold is not replaced, the
department deems such sales as dispositions of a segment
of a business to be reflected on PA Schedule D.

LINE 1b
RETURNS AND ALLOWANCES
This amount is the same for both Pennsylvania and federal
purposes. If you report a different amount for Pennsylvania,
submit an explanation.

LINE 2

CLOSING INVENTORY VALUATION
Fill in the appropriate oval. Submit an explanation if necessary.

COST OF GOODS SOLD
This amount is the same for Pennsylvania and federal purposes. If you report a different amount for Pennsylvania,
submit an explanation.

LINE F

LINE 4

ACCOUNTING METHOD
Fill in the oval for the accounting method you use for this
business. Submit an explanation if necessary.

OTHER INCOME
Enter gross proceeds you may have to report elsewhere on
your federal tax return, including but not limited to:

LINE E

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● The sale of business assets when you reinvest the
proceeds in business operations;
● The gain (loss) on replacing business property, including
land or buildings used in operating your business or
profession; and
● Interest and dividend income from short-term investments to generate working capital.
Submit a statement explaining the amount you enter. See
various sections of the PA Personal Income Tax Guide for
explanations of allocable interest, dividends and gains to
business or professions. Include other income you enter on
Line 6, Federal Schedule C, but not refunds of federal taxes
and credits you did not deduct for PA purposes.

SECTION II
DEDUCTIONS
Use generally accepted accounting principles and practices
to maintain your books and records and report your expenses
from your business or professional activity. PA law does not
impose dollar or percentage limitations on allowable expenses.
You may deduct 100 percent of the PA allowable business
or professional expenses incurred during the taxable year.
NOTE: You may have incurred other expenses for
entertainment facilities (boat, resort, ranch, etc.), living
accommodations (except for employees on business), or
vacations for yourself, your employees, or their families.
Reduce your total business expenses in Section II by the
total of these personal expenses.
Generally, you may usually use your federal Schedule C
expenses for PA PIT purposes. See the other Pennsylvania
and federal income tax differences explanation beginning on
Page 1 of the instructions for more information.
You may not use federal amounts after making certain elections to accelerate or defer expenses or spread expenses
over more than one taxable year. These instructions explain
those expense categories where PA PIT rules and federal
rules differ.

LINE 7
AMORTIZATION
Pennsylvania generally follows federal rules. You have the
option to use any amortization method allowable under generally accepted accounting principles and practices. Include
the amortization of any start-up costs in excess of $5,000 on
this line. Do not include the amortization of IDCs on this line.
See line 35 for IDC amortization.

LINE 10
CAR AND TRUCK EXPENSES
You may deduct 100 percent of your actual vehicle expenses
or you may use the federal standard mileage rate. If you use
the federal standard mileage rate, you may not deduct any
actual operating expenses, including depreciation and lease
costs. Follow the Federal Schedule C rules for these
expenses. If you use your car or truck for both business and
personal travel, you may only deduct the business portion
of your expenses.
4

LINE 13a
REGULAR DEPRECIATION
Use any depreciation method permissible under generally
accepted accounting principles and practices as long as you
consistently apply the method.
NOTE: PA PIT law does not permit any of the bonus
depreciation elections added to the Internal Revenue
Code.
For each asset, you must also report straight-line depreciation, unless not using an optional accelerated depreciation
method. You need straight-line depreciation to take advantage of Pennsylvania’s Depreciation and Basis Adjustment
rule when you sell the asset. See the PA Personal Income
Tax Guide – Net Gains or Losses from the Sale, Exchange,
or Disposition of Property section for the Depreciation and
Basis Adjustment rule.
Pennsylvania Law requires that taxpayers use straight-line
depreciation if an asset’s basis for determining Pennsylvania
depreciation is different from its basis for federal income tax
purposes.

LINE 13b
SECTION 179 EXPENSE
For § 179 Property placed in service before 2023, the PA
PIT dollar limitation is based upon earlier of the IRC § 179
dollar limitation at the time the § 179 Property was placed in
service or the IRC § 179 dollar limitation in effect in 2003.
The applicable PA PIT dollar limitations for those years are
as follows:
1997:
1998:
1999:
2000:
2001-02:
2003-22:

$18,000
$18,500
$19,000
$20,000
$24,000
$25,000

Act 53 of 2022 (Act 2022-53, P.L. 513, No. 53) amended the
PA PIT law to increase the PA PIT dollar limitation to match
the FIT dollar limitation. The amendment applies to § 179
Property placed in service in tax years beginning on or after
January 1, 2023. See Personal Income Tax Bulletin 202302 for additional information.

LINE 14
DUES AND PUBLICATIONS
You may deduct dues and publications, but only to the extent
directly used for ordinary business purposes. You must
exclude any personal use of such expenses.

LINE 15
EMPLOYEE BENEFIT PROGRAMS OTHER THAN ON
LINE 23
You may not deduct any payments you make for your own
personal coverage. Pennsylvania does not allow any
personal expenses on any PA tax return.

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LINE 17
INSURANCE
You may deduct life insurance on yourself or your spouse
only if the business is the beneficiary (not your spouse, other
family members, or other persons). The business must use
the insurance proceeds to continue business operations. If
deducting insurance premiums, the proceeds are business
income on Line 4 of Section I.

LINE 18
INTEREST ON BUSINESS INDEBTEDNESS
Deduct interest on business debt only. If you personally
borrow money to acquire a business interest or to improve
your business, you may not deduct the interest on any PA
schedule or PA tax return.

LINE 20

betterments and improvements are not allowed. Business
privilege taxes and/or gross receipts taxes are acceptable
deductions.

LINE 31
TRAVEL AND ENTERTAINMENT
PA law does not follow federal law. Deduct 100 percent of
your actual travel and entertainment expenses. You may
never deduct the personal portion of your travel and entertainment expenses, whether for yourself, your spouse, your
dependents, or any other person. You must calculate your
expenses using actual expense amounts. You may not use
federal per-diem rates when determining your Pennsylvania
expenses.

LINE 32

MANAGEMENT FEES
Include any management fees paid in conjunction with the
operation of the business to any related or non-related entity.

UTILITIES
Certain utilities, which are not subject to sales and use tax
when purchased exclusively for residential use, become
subject to sales and use tax when used for commercial
purposes. If you are including electricity, natural gas, fuel oil,
or kerosene in your calculation of the business use of your
home, you should report use tax due on the prorated expense
amount. The use tax on these utilities should be paid via the
online Use Tax Return, or if you are required to file a sales
tax return, as part of that return. Please visit the myPATH
website at mypath.pa.gov to file the Use Tax Return or to
register for a use tax account if you have regular recurring
use tax liability on utilities.

LINE 23

LINE 33

PENSION AND PROFIT-SHARING PLANS FOR
EMPLOYEES
Only deduct those expenses directly related to pension and
profit-sharing plans for employees. You may not deduct any
pension or profit-sharing expenses for your own personal
retirement benefits.

WAGES
Do not reduce your wage expense for any federal credits
you claim. Add back any wage expense excluded in order
to claim a federal credit. Do not deduct the costs of your own
participation.

LEGAL AND PROFESSIONAL SERVICES
Only deduct those expenses you incur in operating your
business or profession. You may not deduct any personal
expenses. You may include business accounting and tax
return preparation expenses, but not the costs for personal
accounting and tax returns.

LINE 21

LINE 25
RENT ON BUSINESS PROPERTY
Only deduct those expenditures you incurred in the operation
of your business or profession.

LINE 27
SUBCONTRACTOR FEES
Deduct subcontractor fees that were not included in your
calculation of cost of labor from Line 3 of Schedule C-1. Also
include any fees paid to payees not included as employees
to whom regular wages were paid.

LINE 29
TAXES
Deduct tax expenses other than taxes based on income. You
may not deduct taxes based on net income, federal income
taxes or the one-half of self-employment taxes the IRS
allows. Do not deduct taxes paid to other states or foreign
countries based on income. Do not deduct estate, inheritance, legacy, succession, or gift taxes. Assessments for

LINE 34
IDCS (1/3 CURRENT EXPENSING)
If the business includes an amount on this line, it elects to
directly expense up to one-third of the amount of Intangible
Drilling and Development Costs (IDCs) incurred for the tax
year for any tax year beginning after Dec. 31, 2013. See
Informational Notice, Personal Income Tax 2013-04 for
additional information.

LINE 35
IDCS (AMORTIZATION)
Report the amortization expense of IDCs incurred for all tax
years on this line. IDCs incurred in tax years beginning prior
to Jan. 1, 2014 must be amortized over the life of the well.
IDCs incurred in tax years beginning after Dec. 31, 2013
may be amortized over 10 years (120 months).

LINE 36
START-UP COSTS (DIRECT EXPENSE)
Up to $5,000 of start-up costs may be directly expensed in
the first year in which the business begins operations for tax

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5

years beginning after Dec. 31, 2013. The department will
follow IRC Section 195(b)(1)(A) regarding business start-up
costs where expenses over $5,000 must be amortized over
180 months and any amount of expenses over $50,000
requires a direct reduction in the direct expense amount. For
tax years prior to Jan. 1, 2014, start-up costs are required
to be amortized over 180 months. Record only the direct
expense amount of start-up costs on Line 36 of PA Schedule
C. Report the amortization of any start-up costs on Line 7 of
PA Schedule C.

LINE 37
OTHER EXPENSES
Deduct any other costs of doing business or providing
professional services if such costs are permitted under
generally accepted accounting principles and practices.
Itemize the additional expenses you claim, and enter the
total on Line 37, Total other expenses. You may deduct:
● 100 percent of the PA sales tax paid on a depreciable
business asset. However, on disposition, your Pennsylvania basis and federal basis for that asset will be
different.
● Expenses using the capitalization rules established by
your trade, profession, or industry, under its generally
accepted accounting principles and practices. Once
elected, use this method consistently.
● 100 percent of expenses incurred for removing barriers
to individuals with disabilities and the elderly. This is not
a credit but a direct expense in arriving at the net income
or loss.
● Home office expenses. Pennsylvania generally follows
the federal rules for determining the portion of the
expenses for a home office. Pennsylvania does not
follow the federal safe harbor rules for determining the
allowable expense amount. See Line 32, Utilities, for
additional information.
● Any other expenses allowed under generally accepted
accounting principles or financial accounting standards
board rules but are not allowable or limited under federal
rules. Itemize these expenses.

6

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LINE 38
TOTAL EXPENSES
Add Lines 6 through 37.

LINE 39
NET PROFIT OR LOSS
Subtract Line 38 from Line 5. In calculating net profit or loss
from your business or profession, report your entire loss in
this taxable year.

SCHEDULE C-1
COST OF GOODS SOLD AND/OR OPERATIONS
Generally, if you engaged in a trade or business in which the
production, purchase, or sale of merchandise was an income-producing factor, you must consider inventories at the
beginning and end of your tax year.
In determining inventory value, use the cost, lower of cost
or market, or other method allowable under generally accepted accounting principles and practices. If you change
methods of valuing inventory, restate the value at the beginning of the year based on the changed method, and include
an explanation. There is no provision under PA PIT law similar to IRC Section 481(a) that permits taxpayers to spread
the income effect of a change in method over a specified period. PA PIT rules also do not permit valuing inventory using
uniform capitalization rules under IRC section 263 A (a) and
(b) and inventories calculated using this method for federal
purposes must be recalculated for PA PIT purposes.

SCHEDULE C-2
DEPRECIATION
Complete this schedule if you are using a depreciation
method other than federal depreciation reported on your federal Schedule C. See the instructions for Line 13 on Page 4.

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