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Fill Out Your Pa 40 C Form

The PA-40 C form is utilized by individuals to report profit or loss from their sole proprietorship or business activity in Pennsylvania. This form collects necessary information, including the owner's Social Security number and business details, to ensure accurate state tax assessments. For proper completion, it is essential to download this form onto your computer prior to filling it out.

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Article Structure

The PA-40 C form is an essential document for sole proprietors in Pennsylvania who need to report income or losses from their business operations or professional practices. This form encapsulates various critical elements, including the owner's name, Social Security number, and Federal Employer Identification Number, which are necessary for identification purposes. Sole proprietors must detail their main business activities and provide the business's name and address. Additionally, the form requires information regarding the accounting methods used, inventory valuations, and any deductions for home office expenses. Income reporting encompasses gross receipts, returns and allowances, and various types of income that contribute to the total revenue of the business. Moreover, it lays out expenses in categories such as advertising, supplies, and legal services, allowing for a comprehensive view of the financial activities throughout the year. Understanding how to accurately complete the PA-40 C form is crucial for compliance with state tax regulations and for ensuring that business owners maximize their allowable deductions. As such, it serves as a valuable tool in the preparation and filing of personal income tax returns for Pennsylvania's sole proprietors.

Pa 40 C Example

Owner’s Social Security number

Product or service t

C. Federal Employer Identification Number

IMPORTANT: FILL IN FORM MUST BE DOWNLOADED ONTO YOUR COMPUTER PRIOR TO COMPLETING

	PA SCHEDULE C		2003110059
	Profit or Loss from
START	Business or Profession
START	(Sole Proprietorship)
HERE	PA-40 C (EX) 09-20 (FI)	20___
➜	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

A. Main business activity t
B. Business name t
D. Business address (number and street)				C
City, State and ZIP Code		t		C
City, State and ZIP Code		t
E. Method(s) used to value closing inventory. Fill in the appropriate oval:			Sales Tax License Number (if applicable)
(1)	Cost (2)	Lower of cost or market
(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)

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

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

SECTION II			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)
13.	b.	Section 179 expense			36.		Start-up costs (direct expense)			. . . .
14.	Dues and publications				37.		Other expenses (specify):
14.	Dues and publications		. . . . . . . . . . . . . . . . . .		37.		Other expenses (specify):
15.	Employee benefit programs other than on Line 23						a
15.	Employee benefit programs other than on Line 23						a	. . . . . . .	. . .	. . . .
16.	Freight (not included on Schedule C-1)						b
16.	Freight (not included on Schedule C-1)						b	. . . . . . .	. . .	. . . .
17.	Insurance						c
17.	Insurance		. . . . . . . . . . . . . . . . . .
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							. . . . . . .	. . .	. . . .

			. . . . . . . . . . . . . . . . . .				j
25.	Rent on business property							. . . . . . .	. . .	. . . .

					37.		Total other expenses . . . .
26.	Repairs							. . . . . . .	. . .	. . . .

			. . . . . . . . . . . . . . . . . .		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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2003110059	2003110059

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	PA SCHEDULE C		2003210057
	Profit or Loss from
	Profit or Loss from
	Business or Profession
	(Sole Proprietorship)
	PA-40 C (EX) 09-20 (FI)	20___
	PA Department of Revenue	20___		OFFICIAL USE ONLY
Name of owner as shown on PA tax return:				Social Security Number

START

➜

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.
	c. Balance (subtract Line 2b from Line 2a)
	c. Balance (subtract Line 2b from Line 2a)	. . . . .	. . . . . . . . . . . . . . . . . . . . . .
3.	Cost of labor (do not include salary paid to yourself or subcontractor fees)
4.	Materials and supplies	. . . . .	. . . . . . . . . . . . . . . . . . . . . . . .
5.	Other costs (include schedule)	. . . . .	. . . . . . . . . . . . . . . . . . . . . . . .
6.	Add Lines 1, 2c, 3, 4 and 5	. . . . .	. . . . . . . . . . . . . . . . . . . . . . . .
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 .t

2c.

SCHEDULE C- 2 - Depreciation

PA PIT law does not permit any of the bonus depreciation elections added to the Internal Revenue Code (IRC). PA PIT law limits IRC Section 179 current expensing to the expensing allowed at the time you placed the asset into service or in effect under the IRC of 1986 as amended Jan. 1, 1997. 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 for the Depreciation and Basis Adjustment rule.

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

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

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

	Description of property	Date acquired	Cost or other basis	Depreciation allowed or	Method of calcu-	Life	Depreciation for this year
				allowable in prior years	lating depreciation	or rate
	(a)	(b)	(c)	(d)	(e)	(f)	(g)
	(a)	(b)	(c)	(d)	(e)	(f)

MM/DD/YY

4.Other depreciation:

Buildings . . . . . . . . . . . .

Furniture and fixtures . . .

Transportation equipment

Machinery and other equipment

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

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

5.	Totals (add all Line 4 amounts)	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		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		. t	7.

	SIDE 2
2003210057	2003210057

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PA-40 C IN (EX) 09-20

Instructions for PA-40 Schedule C

Profit or Loss from Business or Profession (Sole Proprietorship)

		OVERVIEW	Maintain separate books and records for PA PIT purposes
		OVERVIEW	and file PA Schedule C. Even if you have no differences
			and file PA Schedule C. Even if you have no differences
Use PA Schedule C to report income or loss from a business			between your federal and Pennsylvania expenses, you must
you operate or a profession you practice as a sole proprietor.			complete and include PA Schedule C to report your income
Your activity qualifies as a business if your primary purpose			for Pennsylvania personal income tax purposes.
for engaging in the activity is income or profit, you conduct
your activity with continuity and regularity and you satisfy			IMPORTANT DIFFERENCES BETWEEN
the “Commercial Enterprise” test. Certain rental activity may			IMPORTANT DIFFERENCES BETWEEN
			FEDERAL AND PENNSYLVANIA RULES
be business income and not rental income. If you are a sole			FEDERAL AND PENNSYLVANIA RULES
be business income and not rental income. If you are a sole
member of an LLC, complete PA Schedule C.			You may use any accounting method for PA purposes, as
For additional information regarding the definition of a business			long as you apply your accounting methods consistently.
			PA law does not have material participation rules. Report
or profession, and for Pennsylvania’s requirements for report-			PA law does not have material participation rules. Report
			all transactions that are directly related to your business
ing income and expenses, refer to the PA Personal Income Tax			all transactions that are directly related to your business
			or profession on your PA Schedule C.
Guide – Net Income or (Loss) from the Operation of a Busi-			or profession on your PA Schedule C.
Guide – Net Income or (Loss) from the Operation of a Busi-
ness, Profession or Farm section for additional information.			If you own or operate more than one business, you must
			If you own or operate more than one business, you must
	NOTE: Pennsylvania determines income and (loss)		submit a separate PA Schedule C for each business operation.


	under accepted accounting principles, systems or		The following federal schedules and instructions do not
	under accepted accounting principles, systems or
practices that are acceptable by standards of the accounting
			apply for PA Schedule C:
profession and consistent with regulations of the department.			apply for PA Schedule C:

● You may use any accounting method for PA purposes,			SCHEDULE A
● You may use any accounting method for PA purposes,			You may not deduct nonbusiness-related personal interest,
	as long as you apply your accounting methods consis-		You may not deduct nonbusiness-related personal interest,
	as long as you apply your accounting methods consis-		taxes and casualty losses on any PA PIT return.
	tently, it clearly reflects income and is not inconsistent		taxes and casualty losses on any PA PIT return.
	tently, it clearly reflects income and is not inconsistent
	with Pennsylvania law or regulations of the department.		SCHEDULE E
● PA law does not contain provisions for statutory employ-			Report rental and royalty income on PA Schedule E, unless
● PA law does not contain provisions for statutory employ-			engaged in the business of making your property or rights
	ees. Federal statutory employees may be required to		engaged in the business of making your property or rights
	ees. Federal statutory employees may be required to		available in a public market place with intention to realize a
	report PA taxable income on Line 1a, PA-40, and use
	report PA taxable income on Line 1a, PA-40, and use		profit.
	PA Schedule UE to deduct expenses. However, you		profit.
	PA Schedule UE to deduct expenses. However, you
	may use PA Schedule C to provide the type and amount		SCHEDULE F
	of expenses that are included as Miscellaneous		SCHEDULE F
	of expenses that are included as Miscellaneous		Report farming activity on PA Schedule F.
	Expenses on PA Schedule UE when there are similar		Report farming activity on PA Schedule F.
	Expenses on PA Schedule UE when there are similar		SCHEDULE SE
	types of expenses for your occupation or position. In		SCHEDULE SE
	such cases, the business will report the business name		Do not report self-employment taxes to Pennsylvania.
	and activity as “Schedule UE Miscellaneous Expenses”		FORM 4562
	with zero amounts reported as Gross receipts or sales		FORM 4562
	with zero amounts reported as Gross receipts or sales		If using bonus depreciation, do not use Form 4562. Use
	and Total income. You must also include “See PA		If using bonus depreciation, do not use Form 4562. Use
	and Total income. You must also include “See PA		Schedule C-2 on Side 2 of this schedule. The maximum
	Schedule C for expenses” on Section III, Line 16 of PA		Schedule C-2 on Side 2 of this schedule. The maximum
	Schedule C for expenses” on Section III, Line 16 of PA		deduction PA income tax law permits under IRC Section 179
	Schedule UE. If using PA Schedule C to report PA		deduction PA income tax law permits under IRC Section 179
	Schedule UE. If using PA Schedule C to report PA		is $25,000. If you have income or loss from more than one
	Schedule UE expense types and amounts, you must		is $25,000. If you have income or loss from more than one
	Schedule UE expense types and amounts, you must		business, profession or farm, you may not deduct more than
	follow PA Schedule UE rules for allowable and unallow-		business, profession or farm, you may not deduct more than
	follow PA Schedule UE rules for allowable and unallow-		$25,000 for all business activities.
	able expenses. See the PA Personal Income Tax Guide		$25,000 for all business activities.
	able expenses. See the PA Personal Income Tax Guide
	– Gross Compensation section for more information.		FORM 4684
● Unless a loss results from an activity where a net profit			Report gain or (loss) from all business activity on PA Schedule
● Unless a loss results from an activity where a net profit			C. Include a casualty or theft loss of business property (or
	has not been realized in at least two years of a five
	has not been realized in at least two years of a five		gain, if insurance proceeds exceed the basis of the property
	consecutive-year	period, an owner may deduct all
	consecutive-year	period, an owner may deduct all	lost or taken) on Line 4 of PA Schedule C. You may refer to
	losses from a business or profession in the taxable year		lost or taken) on Line 4 of PA Schedule C. You may refer to
	losses from a business or profession in the taxable year		the federal schedule for an explanation of gain or (loss)
	realized. Report all transactions directly related to your		the federal schedule for an explanation of gain or (loss)
	realized. Report all transactions directly related to your		items, but do not submit the federal schedule.
	business or profession on PA Schedule C.		items, but do not submit the federal schedule.
	business or profession on PA Schedule C.
● Do not use the installment method for sales of inventory			FORM 4797
	if you sell such inventory in the regular and ordinary		Report other sales, exchanges and involuntary conversions
	course of a business or profession. Include interest on		of business property on Line 4 of PA Schedule C if the prop-
	such sales in gross receipts.		erty sold was replaced. Refer to the federal schedule for an

www.revenue.pa.gov				PA-40 C		1

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explanation of gain/loss items, but do not submit the federal		any differences in depreciation related to differences in basis
schedule.		of assets, amount of allowable Section 179 expense, or
FORM 8271		method of depreciation for federal or PA purposes; and any
		other reductions in federal expenses allowed at 100 percent
Do not report or deduct any transactions related to tax
		for PA personal income tax purposes.
shelters.

FORM 8594		Examples of items that Pennsylvania requires as reductions
		in federal income or expenses include: income taxes based
Report the acquisition or disposition of business assets on
		upon gross or net income; any differences in depreciation
Line 4 of PA Schedule C. Refer to the federal schedule for
		related to differences in basis of assets, amount of allowable
an explanation for gain/loss items, but do not submit the
		Section 179 expense, or method of depreciation for federal
federal schedule.
		or PA purposes; recognition of cancellation of debt income;

FORM 8824		recognition of income from IRC Section 481(a) spread
Do not report a like-kind exchange on PA Schedule C. PA		adjustments; payments for owner pension, profit-sharing
law does not have like-kind exchange provisions. You must		plans, deferred, or welfare benefit plans; percentage deple-
include the gain or loss from a sale, exchange or disposition		tion; direct expensing of organizational expenses or syndi-
of a business asset on Line 4 of PA Schedule C if the trans-		cation fees; losses from the sale of property where PA basis
action was a normal business transaction. You must report		is different than federal basis; and any other income or
any gain or loss from the sale of a nonbusiness asset or		expenses where there is a specialized federal treatment that
property or the sale of a business or segment thereof on PA		is not specifically addressed or allowed by PA personal
Schedule D if the property sold was not replaced.		income tax law that might involve additional expensing,
FORM 8829		expensing verses capitalization, carry back or carry forward
		of losses, income recognition, or other special treatments.
Include your allowable expenses for the business use of
		Other differences between Pennsylvania and federal income
your home on Line 37 of PA Schedule C. Refer to the federal
schedule for an explanation of this expense, but do not sub-		tax include the following:
mit the federal schedule. Pennsylvania does not recognize		IDCs. Special rules apply for the direct expensing of intan-
the federal safe harbor method for determining the allowable		gible drilling & development costs (IDCs). Up to one-third of
deduction for business use of a residence for Pennsylvania		the amount of IDCs incurred in tax years beginning after
Personal Income Tax purposes. All home office expenses		Dec. 31, 2013 may be directly expensed, with the remaining
must be determined by using actual costs incurred.		amount amortized over 10 years. Taxpayers may also elect
		to amortize the full amount of the IDCs over 10 years. The
	OTHER PENNSYLVANIA AND FEDERAL	election to expense any IDCs is made by including an
		amount on Line 34 of PA Schedule C. Amortization of the
	INCOME TAX DIFFERENCES
		IDCs must be reported separately on Line 35 of PA Schedule

PA income from the operation of business generally differs		C. IDCs incurred prior to Jan. 1, 2014 must be amortized
		over the life of the well.
from the income determined for federal income tax purposes.

Further, Pennsylvania will no longer accept a PA Schedule		Qualified Joint Ventures. Pennsylvania is not a community
C-F Reconciliation for the purpose of adjusting the federal		property state. Therefore, for PA personal income tax
business income to PA business income. Therefore, the		purposes, a taxpayer and the taxpayer’s spouse must each
items which were previously included as additions to PA		report on a separate PA Schedule C their share of income
income or expense on the PA Schedule C-F Reconciliation		from a business entity they own that is considered a qualified
should be included with the specific line of income or		joint venture for federal income tax purposes.
expense on the PA Schedule C. In addition, those items
which Pennsylvania does not require be reported as income		LINE INSTRUCTIONS
or does not allow as expense in determining net business

income, which are allowed in the determination of net federal		IDENTIFICATION INFORMATION
business income, should not be included in the specific		Complete each line.
business income or expenses on PA Schedule C.		OWNER'S NAME

Examples of items that Pennsylvania requires as additions		Enter the name of the business owner. If you are married
to income include: any advance receipts for goods or serv-		and you jointly owned the business with your spouse, you
ices; working capital interest or dividend income including		must complete separate PA Schedule C’s. If you and your
federal-exempt interest and dividend income from obliga-		spouse have separate business activities, complete separate
tions of other states; gains from the sale of business assets		PA Schedule(s) C.
where the property is replaced by similar property; gains		SALES TAX LICENSE NUMBER
from like-kind exchanges; gains from involuntary conver-
		Enter your Pennsylvania Sales Tax License Number if you
sions (such as those from IRC Section 1033); and gains
		have one. Otherwise, leave this space blank.
from the sale of property where PA basis is different than

federal basis.		FEDERAL NAICS CODE
Examples of items that Pennsylvania allows as additions to		Provide your Federal NAICS Code as identified on your
		Federal Schedule C.
expenses that require a reduction for federal tax purposes

include: meals, travel and entertainment expense deduction		SOCIAL SECURITY NUMBER (SSN)
of 100 percent by Pennsylvania for the expenses incurred;		Enter the SSN of the business owner.

2	PA-40 C	www.revenue.pa.gov

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LINE A		LINE 1a

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.

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 tax- able 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 E

LINE 2

CLOSING INVENTORY VALUATION

Fill in the appropriate oval. Submit an explanation if necessary.

LINE F

ACCOUNTING METHOD

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

LINE G

INVENTORY CHANGES

Check “Yes” or “No” for this question. Submit an explanation if necessary.

COST OF GOODS SOLD

This amount is the same for Pennsylvania and federal pur- poses. If you report a different amount for Pennsylvania, submit an explanation.

LINE 4

OTHER INCOME

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

●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

	LINE H	● Interest and dividend income from short-term invest-

OFFICE IN-HOME		ments to generate working capital.

Check “Yes” if you deduct expenses for an office in-home.		Submit a statement explaining the amount you enter. See
Check “No” if you do not deduct expenses for an office		various sections of the PA Personal Income Tax Guide for
in-home.		explanations of allocable interest, dividends and gains to
		business or professions. Include other income you enter on
	LINE I	Line 6, Federal Schedule C, but not refunds of federal taxes
		and credits you did not deduct for PA purposes.
OUT OF BUSINESS

		SECTION II
If the business is out-of-existence at the end of the tax year
for which you are filing, fill in the oval.
		DEDUCTIONS

	SECTION I	Use generally accepted accounting principles and practices
		to maintain your books and records and report your expenses

INCOME		from your business or professional activity. PA law does not
Use generally accepted accounting principles and practices		impose dollar or percentage limitations on allowable expenses.
to maintain your books and records, and report your income		You may deduct 100 percent of the PA allowable business
from your business or professional activity.		or professional expenses incurred during the taxable year.

	www.revenue.pa.gov	PA-40 C	3

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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 elec- tions 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 gen- erally 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.

LINE 13b

SECTION 179 EXPENSE

PA PIT law limits IRC Section 179 current expensing to the expensing allowed at the time you placed the asset into serv- ice or in effect under the IRC of 1986 as amended to Jan. 1, 1997. The maximum deduction that PA Income Tax law permits under IRC Section 179 is $25,000. Pennsylvania follows the federal definitions for listed property. If you use Section 179 for federal purposes, you must use Section 179 for Pennsylvania personal income tax purposes. See Infor- mational Notice, Personal Income Tax 2012-05 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.

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 13a
		LINE 13a		LINE 18
REGULAR DEPRECIATION				LINE 18
REGULAR DEPRECIATION			INTEREST ON BUSINESS INDEBTEDNESS
Use any depreciation method permissible under generally			INTEREST ON BUSINESS INDEBTEDNESS
Use any depreciation method permissible under generally			Deduct interest on business debt only. If you personally
accepted accounting principles and practices as long as you			Deduct interest on business debt only. If you personally
accepted accounting principles and practices as long as you			borrow money to acquire a business interest or to improve
consistently apply the method.			borrow money to acquire a business interest or to improve
consistently apply the method.			your business, you may not deduct the interest on any PA
		NOTE: PA PIT law does not permit any of the bonus	your business, you may not deduct the interest on any PA
		NOTE: PA PIT law does not permit any of the bonus	schedule or PA tax return.
		depreciation elections added to the Internal Revenue	schedule or PA tax return.


Code.
Code.				LINE 20
				LINE 20
For each asset, you must also report straight-line deprecia-			LEGAL AND PROFESSIONAL SERVICES
tion, unless not using an optional accelerated depreciation			LEGAL AND PROFESSIONAL SERVICES
tion, unless not using an optional accelerated depreciation			Only deduct those expenses you incur in operating your
method. You need straight-line depreciation to take advan-			Only deduct those expenses you incur in operating your
method. You need straight-line depreciation to take advan-			business or profession. You may not deduct any personal
tage of Pennsylvania’s Depreciation and Basis Adjustment			business or profession. You may not deduct any personal
tage of Pennsylvania’s Depreciation and Basis Adjustment			expenses. You may include business accounting and tax
rule when you sell the asset. See the PA Personal Income			expenses. You may include business accounting and tax
rule when you sell the asset. See the PA Personal Income			return preparation expenses, but not the costs for personal
Tax Guide – Net Gains or Losses from the Sale, Exchange			return preparation expenses, but not the costs for personal
Tax Guide – Net Gains or Losses from the Sale, Exchange			accounting and tax returns.
or Disposition of Property section for the Depreciation and			accounting and tax returns.
or Disposition of Property section for the Depreciation and
Basis Adjustment rule.
Basis Adjustment rule.				LINE 21
Pennsylvania Law requires that taxpayers use straight-line				LINE 21
Pennsylvania Law requires that taxpayers use straight-line
depreciation if an asset’s basis for determining Pennsylvania			MANAGEMENT FEES
depreciation is different from its basis for federal income tax			Include any management fees paid in conjunction with the
purposes.			operation of the business to any related or non-related entity.

	4 PA-40 C			www.revenue.pa.gov

RETURN TO PAGE 1

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.

LINE 34

LINE 25

IDCS (1/3 CURRENT EXPENSING)

RENT ON BUSINESS PROPERTY

If the business includes an amount on this line, it elects to

Only deduct those expenditures you incurred in the operation

directly expense up to one-third of the amount of Intangible

of your business or profession.

Drilling and Development Costs (IDCs) incurred for the tax

year for any tax year beginning after Dec. 31, 2013. See

LINE 27

Informational Notice, Personal Income Tax 2013-04 for

SUBCONTRACTOR FEES

additional information.

Deduct subcontractor fees that were not included in your

LINE 35

calculation of cost of labor from Line 3 of Schedule C-1. Also

include any fees paid to payees not included as employees

IDCS (AMORTIZATION)

to whom regular wages were paid.

Report the amortization expense of IDCs incurred for all tax

years on this line. IDCs incurred in tax years beginning prior

LINE 29

to Jan. 1, 2014 must be amortized over the life of the well.

TAXES

IDCs incurred in tax years beginning after Dec. 31, 2013

may be amortized over 10 years (120 months).

Deduct tax expenses other than taxes based on income. You

may not deduct taxes based on net income, federal income

LINE 36

taxes or the one-half of self-employment taxes the IRS

allows. Do not deduct taxes paid to other states or foreign

START-UP COSTS (DIRECT EXPENSE)

countries based on income. Do not deduct estate, inheri-

Up to $5,000 of start-up costs may be directly expensed in

tance, legacy, succession or gift taxes. Assessments for

the first year in which the business begins operations for tax

betterments and improvements are not allowed. Business

years beginning after Dec. 31, 2013. The department will

privilege taxes and/or gross receipts taxes are acceptable

follow IRC Section 195(b)(1)(A) regarding business start-up

deductions.

costs where expenses over $5,000 must be amortized over

180 months and any amount of expenses over $50,000

LINE 31

requires a direct reduction in the direct expense amount. For

TRAVEL AND ENTERTAINMENT

tax years prior to Jan. 1, 2014, start-up costs are required

to be amortized over 180 months. Record only the direct

PA law does not follow federal law. Deduct 100 percent of

expense amount of start-up costs on Line 36 of PA Schedule

your actual travel and entertainment expenses. You may

C. Report the amortization of any start-up costs on Line 7 of

never deduct the personal portion of your travel and enter-

PA Schedule C.

tainment expenses, whether for yourself, your spouse, your

dependents or any other person. You must calculate your

LINE 37

expenses using actual expense amounts. You may not use

federal per-diem rates when determining your Pennsylvania

OTHER EXPENSES

expenses.

Deduct any other costs of doing business or providing

professional services if such costs are permitted under

LINE 32

generally accepted accounting principles and practices.

UTILITIES

Itemize the additional expenses you claim, and enter the

Certain utilities, which are not subject to sales and use tax

total on Line 37, Total other expenses. You may deduct:

when purchased exclusively for residential use, become

●

100 percent of the PA sales tax paid on a depreciable

subject to sales and use tax when used for commercial

business asset. However, on disposition, your Penn-

purposes. If you are including electricity, natural gas, fuel oil,

sylvania basis and federal basis for that asset will be

or kerosene in your calculation of the business use of your

different.

home, you should report use tax due on the prorated expense

●

Expenses using the capitalization rules established by

amount. The use tax on these utilities should be paid via a

your trade, profession, or industry, under its generally

PA-1, Use Tax Return, or if you are required to file a sales

accepted accounting principles and practices. Once

tax return, as part of that return. If you have a regular recur-

elected, use this method consistently.

ring use tax liability on utilities, you should register for a use

tax

account

using

the

Online

PA-100

● 100 percent of expenses incurred for removing barriers

www.pa100.state.pa.us.

to individuals with disabilities and the elderly. This is not

www.revenue.pa.gov

PA-40 C 5

RETURN TO PAGE 1

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.

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 expla- nation. 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 fed- eral Schedule C. See the instructions for Line 13 on Page 4.

6 PA-40 C

www.revenue.pa.gov

RETURN TO PAGE 1

Get Pa 40 C PDF Form

Form Characteristics

Fact Name	Fact Description
Purpose	The PA-40 C form is used to report profit or loss from a sole proprietorship in Pennsylvania.
Governing Law	This form adheres to Pennsylvania Personal Income Tax Law (PA PIT Law), which outlines regulations for income determination.
Filing Requirements	Taxpayers must complete the PA-40 C if they have a business or profession in Pennsylvania generating income.
Documents	The form must be downloaded and filled out electronically. Handwritten forms are not accepted.
Owner Identification	It requires the owner's name, Social Security Number, and Federal Employer Identification Number (FEIN).
Income Calculation	Gross receipts minus returns and allowances determine the income balance reported on line 1.
Deductions	Taxpayers can deduct allowable business expenses, following principles recognized by the accounting profession.
Inventory Valuation	The form includes sections for reporting business inventory methods and changes related to inventory between the start and end of the year.

Guidelines on Utilizing Pa 40 C

Preparing to fill out the PA-40 C form requires careful attention to detail. This form is essential for reporting income or loss from a business or profession operated as a sole proprietorship. Ensure you have all required information at hand before starting, as this will streamline the process and help in accurately completing the form.

Download the PA-40 C form onto your computer to fill it out electronically.
Enter the owner's name as it appears on the PA tax return in the designated area.
Provide the Owner's Social Security number in the appropriate field.
Input the Federal Employer Identification Number (FEIN) for your business, if applicable.
Indicate the main business activity by selecting the corresponding oval and briefly describing it.
Fill in your business name as registered with the IRS.
Enter the business address, including the number, street, city, state, and ZIP Code.
If applicable, provide your Pennsylvania Sales Tax License number.
Choose a method for valuing closing inventory, marking the appropriate selection: cost, lower of cost or market, or other.
Select your accounting method by marking cash, accrual, or other.
Answer if there were changes in determining quantities, costs, or valuations of inventory between opening and closing by checking yes or no.
Indicate if home office expenses were deducted by selecting yes or no and providing necessary details if applicable.
Mark if the business is out of existence by checking the oval option.
In the income section, fill out gross receipts or sales, returns and allowances, and calculate the balance accordingly.
Report the cost of goods sold, and compute gross profit by subtracting the cost of goods from total income.
Document other income, if applicable, providing any necessary statements.
In the deductions section, list eligible expenses such as advertising, supplies, taxes, and more for a proficient assessment.
Calculate total expenses and subtract from total income to find your net profit or loss, marking accordingly if it's a loss.

What You Should Know About This Form

What is the purpose of the PA-40 C form?

The PA-40 C form is used to report income or losses from a business or profession operated as a sole proprietorship in Pennsylvania. This form is essential for individuals who are filing their state tax returns and need to document earnings from their business activities while adhering to Pennsylvania's specific guidelines and requirements.

Who needs to fill out the PA-40 C form?

Individuals operating a sole proprietorship in Pennsylvania must complete the PA-40 C form. This includes self-employed persons who provide products or services for profit. If you are a sole member of an LLC, you also should fill out this form to report your business income. It's important to note that each business must use a separate form for reporting purposes.

What information is required on the PA-40 C form?

To properly complete the PA-40 C form, you need to provide various details, including your name, Social Security number, and the nature of your business activity. You must also report your gross receipts, deductions, and net profit or loss, among other financial figures. Properly documenting income and expenses according to Pennsylvania's guidelines is crucial for accurate reporting.

How does the PA-40 C form differ from federal tax reporting?

The PA-40 C form has specific requirements that may differ from federal forms. For example, Pennsylvania does not allow certain deductions and reserves the right to require separate reporting for some items that may be treated differently under federal law. It is crucial to adhere to Pennsylvania's accounting principles and regulations, ensuring that you report income and deductions that are allowable under state law.

What should I do if my business is no longer operational?

If your business is no longer operational by the end of the tax year, you should indicate this on the PA-40 C form. There is an option to mark that the business is out of existence. It's essential to report this accurately, as it may affect your tax obligations and eligibility for certain deductions or credits. Providing an explanation in the designated sections can help clarify your situation to the Pennsylvania Department of Revenue.

Common mistakes

Completing the PA-40 C form can be a complex task, and many individuals encounter various pitfalls along the way. Here are seven common mistakes to watch out for when filling out this important document.

One frequent error is failing to provide complete identification information. It's essential to enter the owner's Social Security number, business name, and business address accurately. If any of these details are missing or incorrect, it can cause significant delays in processing your form and potentially lead to penalties.

Another mistake is not selecting an appropriate accounting method. It’s important to choose from options like Cash, Accrual, or Other. If you skip this step or check the wrong box, it could affect how your income and expenses are reported, complicating your tax situation further.

Many people also overlook the importance of reporting inventory values correctly. When filling out the section regarding closing inventory valuation, ensure you specify the method you used—Cost, Lower of Cost or Market, or Other. Failing to do so could result in inaccurate income reporting, which may cause issues with your tax return.

Additionally, errors in reporting gross receipts or sales can lead to complications. Make sure to include all income received from your business activities. Providing incomplete information or miscalculating these figures can have serious tax implications.

Another common oversight is how to address other income. Many individuals do not include additional income sources that are relevant. If you have interest from accounts or proceeds from selling operational assets, you must report these accurately. Again, missing this information can disrupt the accuracy of your return.

It’s also crucial to remember to submit an explanation when asked about inventory changes. If there are any changes in the valuation of your inventory between the beginning and the end of the year, you must address them. Often, individuals forget this step, leading to confusion and potential audits.

Finally, a mistake that can derail your entire filing is neglecting to submit the correct documentation. It's essential to attach any explanations or supplemental information as needed. If you simply send the PA-40 C without the required documents, it may result in processing delays or rejections from the tax department.

By being mindful of these common mistakes, you can ensure a smoother and more accurate filing process for your PA-40 C form.

Documents used along the form

The PA-40 C form is crucial for individuals in Pennsylvania who operate a sole proprietorship and need to report income or loss from their business activities. This form details the financial performance of the business and is essential for calculating personal income tax obligations. Accompanying the PA-40 C form are several other documents that taxpayers may also need to submit, each serving a specific purpose in the reporting process.

PA Schedule C-1: This form is used to report the costs of goods sold or operations. It provides detailed information about inventory levels, purchases, and costs of labor, helping to calculate the total direct costs associated with generating revenue for the business.
PA Schedule C-2: This schedule documents depreciation expenses for assets used in the business. It is essential for reporting any straight-line depreciation taken, ensuring compliance with Pennsylvania’s specific rules regarding asset depreciation.
PA Schedule E: This form is for reporting rental and royalty income. If a taxpayer has income from rental activities related to their business, this form provides the necessary details to report that income accurately.
PA Schedule F: This document is designated for farmers to report income, expenses, and profits or losses from farming activities. It is vital for those involved in agriculture as part of their business operations.

Each of these forms and schedules provides additional details that support the income and expense claims made on the PA-40 C form. Together, they ensure that taxpayers fulfill their reporting requirements and help the state accurately assess individual tax liabilities based on business activities.

Similar forms

PA Schedule E: This form is used for reporting rental and royalty income, similar to the PA-40 C which is utilized for sole proprietorship income. Both forms require specific income details, although Schedule E is focused on passive income rather than active business income.
PA Schedule F: This schedule is designated for farmers and is used to report income and deductions related to farming activities. Like PA-40 C, it collects profit or loss figures and requires detailed income reporting, but specifically caters to agricultural businesses.
PA Schedule UE: This form is for employees who want to deduct unreimbursed business expenses. PA-40 C includes expenses related specifically to self-employment, while Schedule UE is designed for employees who incur expenses in their line of work that are not reimbursed by their employer.
Federal Schedule C: The federal version is similar in purpose, as both forms report income and expenses for businesses. However, while Federal Schedule C can include various business types, the PA-40 C specifically addresses Pennsylvania's tax regulations and compliance requirements for state purposes.

Dos and Don'ts

When filling out the PA-40 C form, there are some important dos and don'ts to keep in mind. Follow these guidelines to ensure your completion is accurate and efficient.

Do download the form onto your computer before filling it out to avoid losing any progress.
Do provide your Social Security number and Federal Employer Identification Number clearly.
Do accurately report all gross receipts and income from your business activities.
Do choose the correct accounting method applicable to your business when prompted.

Don't skip sections or leave any required fields blank. Every piece of information is crucial.
Don't report numbers that don’t correlate with your federal filings without submitting an explanation.
Don't forget to include any business losses or deductions, as they can significantly impact your tax return.
Don't overlook to provide an explanation if there are changes in your closing inventory valuations.

Misconceptions

Misconception 1: The PA-40 C form is only for large businesses.

The PA-40 C form is designed for sole proprietors of any size. Small businesses and self-employed individuals must use this form to report their business income or loss, regardless of their revenue level.

Misconception 2: I can submit the PA-40 C form without additional documentation.

It is essential to attach any required documentation that supports your entries on the PA-40 C form. This includes details about deductions and any income that should be reported separately.

Misconception 3: The PA-40 C form must mirror my federal tax forms exactly.

While there might be similarities between state and federal forms, differences exist due to Pennsylvania's specific tax regulations. Therefore, the PA-40 C may include items or adjustments that are not present in federal returns.

Misconception 4: Filing the PA-40 C is optional for self-employed individuals.

Filing the PA-40 C form is mandatory for self-employed individuals operating a sole proprietorship. Failure to file can lead to penalties and fines from the Pennsylvania Department of Revenue.

Misconception 5: I do not need to report income from online sales on the PA-40 C form.

Income derived from online sales must be reported on the PA-40 C just like any other business income. Pennsylvania tax law recognizes online sales as taxable income.

Misconception 6: I can use federal accounting methods without consideration of state rules.

While federal methods can often guide your reporting, Pennsylvania has its own accounting principles. It is crucial to ensure compliance with state-specific rules to avoid discrepancies.

Misconception 7: Home office expenses cannot be deducted.

You can deduct home office expenses if you meet specific criteria. However, the documentation required and calculations differ between federal and Pennsylvania requirements, emphasizing the need for careful record-keeping.

Misconception 8: As a sole proprietor, I do not need to maintain any formal records.

Sole proprietors are required to maintain accurate and detailed records of all income and expenses relevant to their business activities. This record-keeping is crucial not only for filing the PA-40 C but also for substantiating claims in the event of an audit.

Key takeaways

The PA-40 C form pertains to reporting income and losses from a business or profession operated as a sole proprietorship in Pennsylvania. Below are key takeaways regarding the completion and usage of this form.

The form must be downloaded to your computer before filling it out; it cannot be completed in your browser.
Include all relevant identification information, such as your name, social security number, and the business's federal employer identification number.
The method used for valuing closing inventory needs to be indicated, with options for cost, lower of cost or market, or other methods requiring explanation.
For income reporting, all gross receipts, including sales and other income, must be documented, ensuring consistency with federal tax reporting where applicable.
Deductible expenses should reflect allowable business costs, including advertising, supplies, and utilities, which can be reported without imposed dollar limits by Pennsylvania state law.

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