Pennsylvania TIPS for reporting common expenses (Schedule C)

TIPS for reporting common expenses (Schedule C)
TIPS for reporting common expenses (Schedule C) (REV-1831)
REV-1831 (EX) 05-18

TIPS for reporting common expenses (Schedule C)
www.revenue.pa.gov

The Pennsylvania Department of Revenue has been conducting
reviews of the PA Schedule C expenses and deductions. Only business
expenses are allowable and the expenses must be ordinary,
necessary, reasonable and directly related to the production and
marketing of the taxpayer’s products, goods and services. The
department may contact taxpayers to request an explanation or
supporting information for any amount reported on the PA-40,
Schedule C. The department makes requests for additional
information with the expectation that the taxpayer can substantiate
the information that they previously provided on their return.
Important: Since taxpayers have different bookkeeping methods,
the department will accept various different documentation to support
the expenses claimed. Some examples include general ledgers, excel
spreadsheets, a sample of a monthly statement, receipts, invoices,
travel logs and an explanation of how these expenses are directly
related to the operation of the business. Notification will be sent out
once the correspondence has been reviewed by the department. If
additional information is required to substantiate the expenses
claimed, the department will advise you of what specific information
is required to process your return.

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General Tips

The amount reported on Line 2, Cost of Goods Sold, should be
the same for Pennsylvania and federal purposes. If the amount
reported is different for Pennsylvania, an explanation must be
submitted. Itemized spreadsheets or general ledgers outlining
the expenses claimed are typically acceptable; however, the
department may require actual receipts or invoices to support
the amount claimed.
You may deduct advertising and marketing expenses.
Pennsylvania does not allow charitable deductions claimed for
federal income tax purposes to be deducted as marketing and
advertising expenses. Itemized spreadsheets or general ledgers
outlining the expenses claimed are typically acceptable to
support the advertisement expense claimed on Line 6,
Advertising.
You may deduct 100 percent of your actual vehicle expenses or
you may use the federal standard mileage rate. If your vehicle is
used for both business and personal travel, you may only deduct
the business portion. Itemized spreadsheets, travel log books,
and/or other ledgers outlining the expenses claimed are typically
acceptable to support the expenses claimed on Line 10, Car and
Truck Expenses.
Pennsylvania allows 100 percent of customary and reasonable
amounts expensed on business meals, entertainment and travel
as opposed to the federal limit of 50 percent. Itemized
spreadsheets, credit card statements with notation of the
business purposes and travel logs are typically acceptable to
support the expenses claimed on Line 31, Travel and
Entertainment.
Pennsylvania allows the deduction of monthly utility bills. If
the utilities include both business and personal use, you
may only deduct the business portion. The department may
require copies of monthly bills for all utility expenses claimed on
Line 32, Utilities.

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You may deduct any other costs of doing business or providing
professional services that do not fall under the other lines on the
PA Schedule C. These expenses must be itemized on Line 37,
Other Expenses. The department may require the itemized
breakdown and additional documentation to support the amount
claimed.

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If you are including income reported on a 1099-MISC as gross
receipts or sales on the PA Schedule C, Line 1a, do not list the
same information on the form W2-S.

Submitting Documentation

When submitting the documentation being requested, it is important
to remember that organizing it in a logical format will help to speed
up processing.
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Grouping documentation for a particular line item will help the
department review the information quickly.

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Circling the exact line item claimed as a business expense on a
document will help avoid additional questions.

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Use page separators to differentiate between the expenses for
each line item. If submitting a large file electronically send each
line in a separate transmission. Files cannot exceed 15MB.

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Include detailed breakdowns of your calculation when prorating
or amortizing expenses.

To prevent delays in processing a tax return, the supporting PA
Schedule C documentation may be submitted as a .pdf attachment
when the return is electronically filed.
If unable to attach the documentation to the electronically
filed return, it may be sent to:
Fax: 717-772-4193
E-mail: [email protected]
PA Department of Revenue
Electronic Filing Section
P.O. BOX 280507
Harrisburg, PA 17128-0507
If the department requests the supporting documentation,
please send the information to:
Fax: 717-783-5823
Email: [email protected]
PA Department of Revenue
Bureau of Individual Taxes
P.O. BOX 280501
Harrisburg, PA 17128-0501
When faxing or emailing documentation to the department, it is
important to use either the DEX-93 Personal Income Tax
Correspondence Sheet or a copy of the notice you received as the
first page of the correspondence. This will allow us to quickly and
accurately index the documents to the account.
For additional information regarding the PA Schedule C, go to the
department’s website at www.revenue.pa.gov.