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                                                                                           Publication 334
                           Tax Guide for                                                   Catalog Number 11063P

                           Small Business                                                  For use in preparing
Department 
of the                     (For Individuals Who Use                                        2022 Returns
Treasury                   Schedule C)
Internal 
Revenue 
Service

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Jan 11, 2023

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                                                                               Chapter  9.  Figuring Net Profit or Loss          . . . . . . . . . . . . . . 39
Contents                                                                       Net Operating Losses (NOLs)                 . . . . . . . . . . . . . . . . . 40
                                                                               Not-for-Profit Activities         . . . . . . . . . . . . . . . . . . . . .   40
What's New for 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
                                                                               Chapter  10.  Self-Employment (SE) Tax . . . . . . . . . . . . . .            40
What's New for 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . .   4  Who Must Pay SE Tax?              . . . . . . . . . . . . . . . . . . . . .   40
Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4  Reporting SE Tax . . . . . . . . . . . . . . . . . . . . . . . . .            44
Photographs of Missing Children . . . . . . . . . . . . . . . . . . .       5  Chapter  11.  Your Rights as a Taxpayer . . . . . . . . . . . . . .           44
                                                                               Examinations, Appeals, Collections, and Refunds                     . . . .   44
Chapter  1.  Filing and Paying Business Taxes . . . . . . . . . . .         5
Identification Numbers        . . . . . . . . . . . . . . . . . . . . . .   5  Chapter  12.  How To Get More Information . . . . . . . . . . . .             45
Income Tax      . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6  Small Business Administration                 . . . . . . . . . . . . . . . . 49
Self-Employment (SE) Tax          . . . . . . . . . . . . . . . . . . . .   9  Other Federal Agencies . . . . . . . . . . . . . . . . . . . . .              49
Employment Taxes . . . . . . . . . . . . . . . . . . . . . . . .            10 How To Get Tax Help       . . . . . . . . . . . . . . . . . . . . . . . . .   45
Excise Taxes      . . . . . . . . . . . . . . . . . . . . . . . . . . .     10
Information Returns       . . . . . . . . . . . . . . . . . . . . . . .     11 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   50

Chapter  2.  Accounting Periods and Methods . . . . . . . . . .             12
Accounting Periods        . . . . . . . . . . . . . . . . . . . . . . .     12
Accounting Methods . . . . . . . . . . . . . . . . . . . . . . .            13 Future Developments
                                                                               For the latest information about developments related to 
Chapter  3.  Dispositions of Business Property        . . . . . . . . .     16 Pub.  334,  such  as  legislation  enacted  after  it  was 
What Is a Disposition of Property? . . . . . . . . . . . . . .              17 published, go to IRS.gov/Pub334.
How Do I Figure a Gain or Loss?           . . . . . . . . . . . . . . .     17
Where Do I Report Gains and Losses?             . . . . . . . . . . . .     18 Introduction
Chapter  4.  General Business Credits . . . . . . . . . . . . . . .         18 This  publication  provides  general  information  about  the 
Business Credits . . . . . . . . . . . . . . . . . . . . . . . . .          18 federal  tax  laws  that  apply  to  you  if  you  are  a  self-em-
How To Claim the Credit         . . . . . . . . . . . . . . . . . . . .     20 ployed  person  or  a  statutory  employee.  This  publication 
                                                                               has  information  on  business  income,  expenses,  and  tax 
Chapter  5.  Business Income    . . . . . . . . . . . . . . . . . . . .     20 credits that may help you, as a small business owner, file 
Kinds of Income       . . . . . . . . . . . . . . . . . . . . . . . . .     20 your income tax return.
Items That Are Not Income . . . . . . . . . . . . . . . . . . .             24
Guidelines for Selected Occupations             . . . . . . . . . . . .     25 This  publication  does  not  cover  the  topics  listed  in 
Accounting for Your Income . . . . . . . . . . . . . . . . . .              26 the following table. 

Chapter  6.  How To Figure Cost of Goods Sold         . . . . . . . . .     27 IF you need information about:                        THEN you should see:
Figuring Cost of Goods Sold on Schedule C, Lines                               Corporations  . . . . . . . . . . . . . . . . . . .   Pub. 542
35 Through 42 . . . . . . . . . . . . . . . . . . . . . . . . .             27                       . . . . . . . . . . . . . . . . Pub. 535
                                                                               Business expenses
Chapter  7.  Figuring Gross Profit . . . . . . . . . . . . . . . . . .      29 Farming. . . . . . . . . . . . . . . . . . . . . . .  Pub. 225
                                                                               Fishermen (Capital Construction Fund)         . . .   Pub. 595
Items To Check . . . . . . . . . . . . . . . . . . . . . . . . . .          30 International business. . . . . . . . . . . . . .     IRS.gov/International
Testing Gross Profit Accuracy . . . . . . . . . . . . . . . . .             30 Partnerships. . . . . . . . . . . . . . . . . . . .   Pub. 541
Additions to Gross Profit . . . . . . . . . . . . . . . . . . . .           30 Passive activities. . . . . . . . . . . . . . . . .   Pub. 925
                                                                               Recordkeeping. . . . . . . . . . . . . . . . . .      Pub. 583
Chapter  8.  Business Expenses . . . . . . . . . . . . . . . . . . .        30 Rental. . . . . . . . . . . . . . . . . . . . . . . . Pub. 527
Bad Debts     . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     31 S corporations. . . . . . . . . . . . . . . . . . .   Instructions for Form 
Car and Truck Expenses          . . . . . . . . . . . . . . . . . . . .     31                                                       1120-S
                                                                               Starting a business. . . . . . . . . . . . . . . .    Pub. 583
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .        32
Employees' Pay . . . . . . . . . . . . . . . . . . . . . . . . . .          33
Insurance     . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     34
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      35
                                                                               Are You Self-Employed?
Legal and Professional Fees . . . . . . . . . . . . . . . . . .             35
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . .         35 You are a self-employed person if you carry on a trade or 
                                                                               business  as  a  sole  proprietor  or  an  independent 
Rent Expense . . . . . . . . . . . . . . . . . . . . . . . . . . .          36
                                                                               contractor.
Taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      36
Travel and Meals      . . . . . . . . . . . . . . . . . . . . . . . . .     37         You do not have to carry on regular full-time busi-
Business Use of Your Home . . . . . . . . . . . . . . . . . .               37 !       ness  activities  to  be  self-employed.  Having  a 
Other Expenses You Can Deduct . . . . . . . . . . . . . . .                 39 CAUTION part-time business in addition to your regular job 
                                                                               or business may be self-employment.
Expenses You Cannot Deduct . . . . . . . . . . . . . . . . .                39

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Trade or business. A trade or business is generally an the business either as a sole proprietorship or a partner-
activity carried on to make a profit. The facts and circum- ship. States with community property laws include Ari-
stances of each case determine whether or not an activity zona, California, Idaho, Louisiana, Nevada, New Mexico,
is a trade or business. You do not need to actually make a Texas, Washington, and Wisconsin. A change in your re-
profit to be in a trade or business as long as you have a porting position will be treated as a conversion of the en-
profit motive. You do need to make ongoing efforts to fur- tity. See Pub. 555 for more information about community
ther the interests of your business. property laws.
Limited liability company (LLC). An LLC is an entity Exception—Qualified joint venture. If you and your
formed under state law by filing articles of organization. spouse each materially participate as the only members of
Generally, for income tax purposes, a single-member LLC a jointly owned and operated business, and you file a joint
is disregarded as an entity separate from its owner and return for the tax year, you can make a joint election to be
reports its income and deductions on its owner's federal treated as a qualified joint venture instead of a partnership
income tax return. For example, if the single-member LLC for the tax year. Making this election will allow you to avoid
is not engaged in farming and the owner is an individual, the complexity of Form 1065 but still give each spouse
they may use Schedule C. credit for social security earnings on which retirement
Sole proprietor. A sole proprietor is someone who owns benefits are based. For an explanation of "material partici-
an unincorporated business by themselves. You are also pation," see the instructions for Schedule C, line G.
a sole proprietor for income tax purposes if you are an in- Only businesses that are owned and operated by
dividual and the sole member of a domestic LLC unless ! spouses as co-owners (and not in the name of a
you elect to have the LLC treated as a corporation. CAUTION state law entity) qualify for the election. Thus, a
Independent contractor. People such as doctors, den- business owned and operated by spouses through an
tists, veterinarians, lawyers, accountants, contractors, LLC does not qualify for the election of a qualified joint
subcontractors, public stenographers, or auctioneers who venture.
are in an independent trade, business, or profession in To make this election, you must divide all items of
which they offer their services to the general public are income, gain, loss, deduction, and credit attributable to
generally independent contractors. However, whether the business between you and your spouse in accordance
they are independent contractors or employees depends with your respective interests in the venture. Each of you
on the facts in each case. The general rule is that an indi- must file a separate Schedule C and a separate
vidual is an independent contractor if the person paying Schedule SE. For more information, see Qualified Joint
for the work has the right to control or to direct only the re- Ventures in the Instructions for Schedule SE.
sult of the work and not how it will be done. The earnings
of a person who is working as an independent contractor
are subject to self-employment tax. For more information
on determining whether you are an employee or inde- Additional Information
pendent contractor, see Pub. 15-A, Employer's Supple- What you need to know. Table A provides a list of
mental Tax Guide. questions you need to answer to help you meet your fed-
eral tax obligations. After each question is the location in
this publication where you will find the related discussion.
Are You a Statutory Employee? The IRS mission. Provide America's taxpayers top-qual-
A statutory employee has a checkmark in box 13 of their ity service by helping them understand and meet their tax
Form W-2, Wage and Tax Statement. Statutory responsibilities and enforce the law with integrity and fair-
employees use Schedule C to report their wages and ness to all.
expenses. Comments and suggestions. We welcome your com-
ments about this publication and suggestions for future
editions.
Business Owned and Operated You can send us comments through IRS.gov/
FormComments. Or, you can write to the Internal Reve-
by Spouses nue Service, Tax Forms and Publications, 1111 Constitu-
If you and your spouse jointly own and operate an tion Ave. NW, IR-6526, Washington, DC 20224.
unincorporated business and share in the profits and Although we can’t respond individually to each com-
losses, you are partners in a partnership, whether or not ment received, we do appreciate your feedback and will
you have a formal partnership agreement. Do not use consider your comments and suggestions as we revise
Schedule C. Instead, file Form 1065, U.S. Return of our tax forms, instructions, and publications. Don’t send
Partnership Income. For more information, see Pub. 541, tax questions, tax returns, or payments to the above ad-
Partnerships. dress.
Exception—Community income. If you and your Getting answers to your tax questions. If you have a
spouse wholly own an unincorporated business as com- tax question not answered by this publication or the How
munity property under the community property laws of a To Get Tax Help section at the end of this publication, go
state, foreign country, or U.S. possession, you can treat to the IRS Interactive Tax Assistant page at IRS.gov/

Publication 334 (2022) Page 3

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Table A. What You Need To Know About Federal Taxes
(Note. The following is a list of questions you may need to answer so you can fill out your federal income tax return.
Chapters are given to help you find the related discussion in this publication.)
What must I know? Where to find the answer
What kinds of federal taxes do I have to pay? How do I pay them? See chapter 1.
What forms must I file? See chapter 1.
What must I do if I have employees? See Employment Taxes in chapter 1.
Do I have to start my tax year in January, or can I start it in any other month? See Accounting Periods in chapter 2.
What method can I use to account for my income and expenses? See Accounting Methods in chapter 2.
What must I do if I disposed of business property during the year? See chapter 3.
What kinds of business income do I have to report on my tax return? See chapter 5.
What kinds of business expenses can I deduct on my tax return? See Business Expenses in chapter 8.
What kinds of expenses are not deductible as business expenses? See Expenses You Cannot Deduct in chapter 8.
What happens if I have a business loss? Can I deduct it? See chapter 9.
What are my rights as a taxpayer? See chapter 11.
Where do I go if I need help with federal tax matters? See chapter 12.

Help/ITA where you can find topics by using the search Coronavirus Response Act and the American Rescue
feature or viewing the categories listed. Plan Act. See Forms 941 and 944. You must include the
Getting tax forms, instructions, and publications. Go full amount (both the refundable and nonrefundable por-
to IRS.gov/Forms to download current and prior-year tions) of the credit for qualified sick and family leave wa-
forms, instructions, and publications. ges in gross income for the tax year that includes the last
day of any calendar quarter with respect to which a credit
Ordering tax forms, instructions, and publications.
is allowed.
Go to IRS.gov/OrderForms to order current forms, instruc-
tions, and publications; call 800-829-3676 to order Note. A credit is available only if the leave was taken
prior-year forms and instructions. The IRS will process after March 31, 2020, and before October 1, 2021, and
your order for forms and publications as soon as possible. only after the qualified leave wages were paid, which
Don’t resubmit requests you’ve already sent us. You can might under certain circumstances not occur until a quar-
get forms and publications faster online. ter after September 30, 2021, including quarters during
2022.
Business meal expense. For a limited time, business
What's New for 2022 meals are 100% deductible under certain conditions. See
The following are some of the tax changes for 2022. Meals and lodging, later, for more information.
Maximum net earnings. The maximum net self-employ-
ment earnings subject to the social security part of the
self-employment tax is $147,000 for 2022. There is no What's New for 2023
maximum limit on earnings subject to the Medicare part.
The following are some of the tax changes for 2023. For
Standard mileage rate. For 2022, the standard mileage information on other changes, go to IRS.gov.
rate for the cost of operating your car, van, pickup, or
panel truck for each mile of business use from January 1, Maximum net earnings. The maximum net self-employ-
2022, to June 30, 2022, is 58.5 cents per mile. The busi- ment earnings subject to the social security part of the
ness standard mileage rate from July 1, 2022, to Decem- self-employment tax is $160,200 for 2023.
ber 31, 2022, is 62.5 cents per mile. Standard mileage rate. For 2023, the standard mileage
For more information, see Car and Truck Expenses in rate for the cost of operating your car, van, pickup, or
chapter 8. panel truck for each mile of business use is 65.5 cents per
New Form 7205, Energy efficient commercial build- mile.
ings deduction. This new form and its separate instruc-
tions are used to claim the section 179D deduction for
qualifying energy efficient commercial building expenses. Reminders
See Form 7205.
Self-employed tax payments deferred in 2020. If you
Qualified paid sick leave and qualified paid family elected to defer self-employed tax payments from 2020,
leave payroll tax credit. The amount of any payroll tax see How self-employed individuals and household
credit taken by an employer for qualified paid sick leave employers repay deferred Social Security tax.
and qualified paid family leave under the Families First

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Excess business loss limitation. Your loss from a 1-800-THE-LOST (1-800-843-5678) if you recognize a
trade or business may be limited. Use Form 461 to deter- child.
mine the amount of your excess business loss, if any.
Your excess business loss will be included as income on
line 8p of Schedule 1 (Form 1040) and treated as a net
operating loss (NOL) that you must carry forward and de-
duct in a subsequent tax year.
For more information about the excess business loss 1.
limitation, see Form 461 and its instructions.

Reportable transactions. You must file Form 8886, Re- Filing and Paying
portable Transaction Disclosure Statement, to report cer-
tain transactions. You may have to pay a penalty if you are
required to file Form 8886 but do not do so. You may also Business Taxes
have to pay interest and penalties on any reportable trans-
action understatements. Reportable transactions include:
Introduction
1. Transactions the same as or substantially similar to
This chapter explains the business taxes you may have to
tax avoidance transactions identified by the IRS;
pay and the forms you may have to file. It also discusses
2. Transactions offered to you under conditions of confi- taxpayer identification numbers.
dentiality for which you paid an advisor a minimum Table 1-1 lists the benefits of filing electronically.
fee; Table 1-2 lists the federal taxes you may have to pay,
their due dates, and the forms you use to report them.
3. Transactions for which you have, or a related party Table 1-3 provides checklists that highlight the typical
has, contractual protection against disallowance of forms and schedules you may need to file if you ever go
the tax benefits; out of business.
4. Transactions that result in losses of at least $2 million You may want to get Pub. 509, Tax Calendars. It
in any single tax year ($50,000 if from certain foreign TIP has tax calendars that tell you when to file returns
currency transactions) or $4 million in any combina- and make tax payments.
tion of tax years; and
5. Transactions the same as or substantially similar to
Useful Items
one of the types of transactions the IRS has identified You may want to see:
as a transaction of interest.
For more information, see the Instructions for Form Publication
8886. 505 505 Tax Withholding and Estimated Tax
Small Business and Self-Employed (SB/SE) Tax Cen- 535 535 Business Expenses
ter. Do you need help with a tax issue or preparing your
return, or do you need a free publication or form? The 583 583 Starting a Business and Keeping Records
SB/SE Tax Center serves taxpayers who file Form 1040;
Form 1040-SR; Schedule C, E, or F; or Form 2106, as Form (and Instructions)
well as small business taxpayers with assets under $10 461 461 Limitation on Business Losses
million. For additional information, go to the SB/SE Tax
1040
Center at IRS.gov/Businesses/Small. 1040 U.S. Individual Income Tax Return
Gig Economy Tax Center. The gig (or on-demand, 1040-SR 1040-SR U.S. Tax Return for Seniors
sharing, or access) economy refers to an area of activity 1040-ES 1040-ES Estimated Tax for Individuals
where people earn income providing on-demand work,
7205
services, or goods. Go to IRS.gov/Gig to get more infor- 7205 Energy Efficient Commercial Buildings
mation about the tax consequences of participating in the Deduction
gig economy. Sch C (Form 1040) Sch C (Form 1040) Profit or Loss From Business
Sch SE (Form 1040) Sch SE (Form 1040) Self-Employment Tax
Photographs of Missing See chapter 12 for information about getting publications
and forms.
Children
The Internal Revenue Service is a proud partner with the
National Center for Missing & Exploited Children® Identification Numbers
(NCMEC). Photographs of missing children selected by
the Center may appear in this publication on pages that This section explains three types of taxpayer identification
would otherwise be blank. You can help bring these numbers (TINs), who needs them, when to use them, and
children home by looking at the photographs and calling how to get them.

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Social  security  number  (SSN).     Generally,  use  your          these payments (the payee) a statement showing the total 
SSN as your TIN. You must put this number on each of                amount  paid  during  the  year.  You  must  include  the 
your individual income tax forms, such as Form 1040 and             payee's identification number and your identification num-
its schedules.                                                      ber on the returns and statements.
To apply for an SSN, use Form SS-5, Application for a 
                                                                    Employee.     If  you  have  employees,  you  must  get  an 
Social Security Card. This form is available at Social Se-
                                                                    SSN  from  each  of  them.  Record  the  name  and  SSN  of 
curity  Administration  (SSA)  offices  or  by  calling 
                                                                    each employee exactly as they are shown on the employ-
800-772-1213. It is also available from the SSA website at 
                                                                    ee's  social  security  card.  If  the  employee's  name  is  not 
SSA.gov/forms/ss-5. 
                                                                    correct  as  shown  on  the  card,  the  employee  should  re-
Individual taxpayer identification number (ITIN).    The            quest a new card from the SSA. This may occur if the em-
IRS will issue an ITIN if you are a nonresident or resident         ployee's name was changed due to marriage or divorce.
alien and you do not have and are not eligible to get an            Form  W-4,  Employee's  Withholding  Allowance  Certifi-
SSN. The ITIN will expire for any taxpayer who does not             cate, is completed by each employee so the correct fed-
file a federal income tax return (or who is not included as a       eral income tax can be withheld from their pay.
dependent  on  the  return  of  another  taxpayer)  for  3  con-    If your employee does not have an SSN, they should 
secutive years. In general, if you need to obtain an ITIN,          file Form SS-5 with the SSA.
you must attach Form W-7, Application for IRS Individual            Other payee.  If you make payments to someone who 
Taxpayer Identification Number, with your signed, original,         is not your employee and you must report the payments 
completed tax return and any other required documenta-              on  an  information  return,  get  that  person's  SSN.  If  you 
tion  and  mail  them  to  the  address  in  the  Instructions  for must report payments to an organization, such as a corpo-
Form  W-7.  Exceptions  are  covered  in  the  instructions.  If    ration or partnership, you must get its EIN.
you  must  include  another  person's  SSN  on  your  return        To  get  the  payee's  SSN  or  EIN,  use Form  W-9,  Re-
and that person does not have and cannot get an SSN,                quest  for  Taxpayer  Identification  Number  and  Certifica-
enter that person's ITIN. The application is also available         tion.
in Spanish. The form is available at IRS.gov/FormW7.                A payee who does not provide you with an identifica-
        An ITIN is for tax use only. It does not entitle the        tion number may be subject to backup withholding. For in-
                                                                    formation on backup withholding, see the Instructions for 
CAUTION holder's employment or immigration status.
!       holder  to  social  security  benefits  or  change  the     the Requester of Form W-9 and the General Instructions 
                                                                    for Certain Information Returns.
Employer identification number (EIN).  You must also 
have an EIN to use as a TIN if you do either of the follow-
ing.                                                                Income Tax
• Pay wages to one or more employees.                               This part explains whether you have to file an income tax 
• File pension or excise tax returns.                               return and when you file it. It also explains how you pay 
                                                                    the tax.
If you must have an EIN, include it along with your SSN 
on your Schedule C as instructed.
You can apply for an EIN:                                           Do I Have To File an Income Tax 
• Online by clicking on the Employer ID Numbers (EINs)              Return?

  link at IRS.gov/EIN as long as the principal business             You have to file an income tax return for 2022 if your net 
  location is in the United States or U.S. territories—the          earnings from self-employment were $400 or more. If your 
  EIN is issued immediately once the application infor-             net earnings from self-employment were less than $400, 
  mation is validated;                                              you still have to file an income tax return if you meet any 
• By telephone at 267-941-1099 (not a toll-free number)             other filing requirement listed in the Instructions for Form 
  only if the principal business is located outside the             1040.
  United States or U.S. territories; or
• By mailing or faxing Form SS-4, Application for Em-               How Do I File?
  ployer Identification Number.
                                                                    File  your  income  tax  return  on Form  1040       or  Form 
New EIN.  You may need to get a new EIN if either the               1040-SR and attach Schedule C. Enter the net profit or 
form  or  the  ownership  of  your  business  changes.  For         loss  from  Schedule  C  on  Schedule  1  (Form  1040).  Use 
more  information,  see  Pub.  1635,  Understanding  Your           Schedule C to figure your net profit or loss from your busi-
EIN.                                                                ness. If you operated more than one business as a sole 
                                                                    proprietorship, you must attach a separate Schedule C for 
When you need identification numbers of other per-                  each business.
sons. In operating your business, you will probably make 
certain payments you must report on information returns. 
These  payments  are  discussed  under Information  Re-
turns, later in this chapter. You must give the recipient of 

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IRS e-file (Electronic Filing)                                      will need to know the filing status, the first SSN shown on 
                                                                    the  return,  and  the  exact  whole-dollar  amount  of  the  re-
                                                                    fund. To check on your refund, do one of the following.
                                                                    • Go to IRS.gov/Refunds.
                                                                    • Download the free IRS2Go app to your smart phone 
You may be able to file your tax returns electronically us-           and use it to check your refund status.
ing an IRS e-file option. Table 1-1 lists the benefits of IRS 
e-file.  IRS e-file  uses  automation  to  replace  most  of  the   • Call 800-829-1954 for automated refund information, 
manual steps needed to process paper returns. As a re-                and follow the recorded instructions.
sult, the processing of IRS e-file returns is faster and more       The IRS can’t issue refunds before mid-February 2023 
accurate than the processing of paper returns. As with a            for  returns  that  claimed  the  earned  income  credit  or  the 
paper return, you are responsible for making sure your re-          additional child tax credit. This applies to the entire refund, 
turn contains accurate information and is filed on time.            not just the portion associated with these credits.

Using IRS    e-file does not affect your chances of an IRS          Balance due.  If your return shows that you owe tax, you 
examination of your return.                                         must pay it by the due date of your return (without regard 
                                                                    to  any  extension  to  file)  to  avoid  late-payment  penalties 
You can file most commonly used business forms using 
                                                                    and  interest.  For  calendar  year  2022,  pay  by  April  18, 
IRS e-file. For more information, go to IRS.gov.
                                                                    2023. You have many options for making your payment, 
Electronic  signatures.   Paperless  filing  is  easier  than       including  by  scheduling  an  electronic  funds  withdrawal 
you  think  and  it's  available  to  most  taxpayers  who  file    from your checking or savings account or by credit card. 
electronically—including  those  first-time  filers  who  were      For more information about your payment options, go to 
16 or older at the end of 2022. If you file electronically us-      IRS.gov/Payments.
ing tax preparation software or a tax professional, you will 
sign your return using the Self-Select PIN (personal identi-        Using an Authorized IRS e-file Provider
fication number) Method for IRS   e-file. If you are married 
filing jointly, you and your spouse will each need to create        Many  tax  professionals  can  electronically  file  paperless 
a PIN and enter these PINs as your electronic signatures.           returns for their clients. You have two options.
To create a PIN, you must know your adjusted gross in-              1. You can prepare your return, take it to an authorized 
come (AGI) from your originally filed 2021 income tax re-             IRS e-file provider, and have the provider transmit it 
turn (not from an amended return, Form 1040-X, or after               electronically to the IRS.
receiving  any  math  error  notice  from  the  IRS).  You  will 
also need to provide your date of birth (DOB). Make sure            2. You can have an authorized IRS e-file provider pre-
your DOB is accurate and matches the information on re-               pare your return and transmit it for you electronically.
cord with the SSA before you e-file. To do this, check your 
annual Social Security Statement.                                   You  will  be  asked  to  complete  Form  8879,  IRS   e-file 
With  a  Self-Select  PIN,  there  is  nothing  to  sign  and       Signature Authorization, to authorize the provider to enter 
nothing to mail—not even your Form(s) W-2. For more de-             your self-selected PIN on your return.
tails on the Self-Select PIN Method, go to IRS.gov.
                                                                    Depending on the provider and the specific services re-
State returns.     In most states, you can file an electronic       quested, a fee may be charged. To find an authorized IRS 
state  return  simultaneously  with  your  federal  return.  For    e-file provider near you, go to IRS.gov/Efile/Providers.
more  information,  check  with  your  state  tax  agency,  tax 
professional, or IRS.gov.                                           Using Your Personal Computer

Refunds.     You can have your refund check mailed to you,          A computer with Internet access is all you need to file your 
or  you  can  have  your  refund  deposited  directly  to  your     tax  return  using  IRS e-file.  When  you  use  your  personal 
checking or savings account.                                        computer, you can e-file your return from your home any 
With  IRS    e-file,  your  refund  will  be  issued  in  half  the time of the day or night. Sign your return electronically us-
time as when filing on paper. Most refunds are issued in            ing a self-selected PIN to complete the process. There is 
less than 21 days.                                                  no signature form to submit or Forms W-2 to send in.

Offset  against  debts.     As  with  a  paper  return,  you        Free  software  options  for  doing  your  taxes.     If  your 
may not get all of your refund if you owe certain past-due          AGI  was  $73,000  or  less  in  2022,  you  can  use  free  tax 
amounts, such as federal tax, state tax, a student loan, or         software to prepare and e-file your tax return.
child support. You will be notified if the refund you claimed 
has been offset against your debts.                                 Free  File.   This  public-private  partnership,  between 
                                                                    the IRS and tax software providers, makes approximately 
Refund inquiries.  You can check the status of your re-             a  dozen  brand-name  commercial  software  products  and 
fund if it has been at least 24 hours (4 weeks if you mailed        e-file available for free. Just go to IRS.gov/FreeFile for de-
a paper return) from the date you filed your return. Be sure        tails. You can review each software provider's criteria for 
to have a copy of your tax return available because you             free usage or use an online tool to find which free software 

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products  match  your  situation.  Some  software  providers     employer or financial institution if they offer IRS                 e-file as 
offer state tax return preparation for free.                     an employee, member, or customer benefit.
Free  File  Fillable  Forms.     The  IRS  also  offers  elec-
tronic versions of IRS paper forms that can also be e-filed      Free Help With Your Return
for free. Free File Fillable Forms is best for people experi-
                                                                 Free help in preparing your return is available nationwide 
enced in preparing their own tax returns. There is no in-
                                                                 from  IRS-trained  volunteers.  The  Volunteer  Income  Tax 
come  limitation  to  using  these  forms.  Free  File  Fillable 
                                                                 Assistance  (VITA)  program  is  designed  to  help  low-in-
Forms does basic math calculations. It supports only fed-
                                                                 come  taxpayers,  and  the  Tax  Counseling  for  the  Elderly 
eral tax forms.
                                                                 (TCE) program is designed to assist taxpayers age 60 or 
                                                                 older with their tax returns. Some locations offer free elec-
Filing Through Employers and Financial                           tronic filing.
Institutions

Some  businesses  offer  free    e-file  to  their  employees, 
members, or customers. Others offer it for a fee. Ask your 
Table 1-1. Benefits of IRS e-file
Accuracy                         • Your chance of getting an error notice from the IRS is significantly reduced.
Security                         • Your privacy and security are assured.
Electronic signatures            • Create your own personal identification number (PIN) and file a completely paperless return through your 
                                   tax preparation software or tax professional. There is nothing to mail.
Proof of acceptance              • You receive an electronic acknowledgment within 48 hours that the IRS has accepted your return for 
                                   processing.
Fast refunds                     • You get your refund faster with direct deposit.
Free Internet filing options     • Use IRS.gov to access commercial tax preparation and e-file services available at no cost to eligible 
                                   taxpayers.
Electronic payment options       • Convenient, safe, and secure electronic payment options are available. E-file and pay your taxes in a 
                                   single step. Schedule direct payment from your checking or savings account (up to and including April 18, 
                                   2023) or pay by debit or credit card.
Federal/State filing             • Prepare and file your federal and state tax returns together and double the benefits you get from e-file.

When Is My Tax Return Due?                                       your  return.  For  more  information  on  estimated  tax,  see 
                                                                 Pub. 505.
For  calendar  year  2022,  Forms  1040  and  1040-SR  are              What  are  my  options  for  paying  estimated  tax? 
due by April 18, 2023. If you use a fiscal year (explained in    You can pay your estimated tax electronically using vari-
chapter 2), your return is due by the 15th day of the 4th        ous options. If you pay electronically, there is no need to 
month after the end of your fiscal year. If you file late, you   mail in Form 1040-ES payment vouchers. These options 
may have to pay penalties and interest.                          include:
If you cannot file your return on time, use   Form 4868,                1. Paying electronically through the Electronic Federal 
Application for Automatic Extension of Time To File U.S.                 Tax Payment System (EFTPS),
Individual  Income  Tax  Return,  to  request  an  automatic 
                                                                        2. Paying with Direct Pay by authorizing an electronic 
6-month extension. For calendar year taxpayers, this will 
                                                                         funds withdrawal when you file Form 1040 or 
extend the tax filing due date until October 15. Filing an 
                                                                         1040-SR electronically, or
extension does not extend the time to pay your taxes, only 
the time to file the tax return.                                        3. Paying by credit or debit card over the phone or by In-
                                                                         ternet.
How Do I Pay Income Tax?                                         Other options include crediting an overpayment from your 
                                                                 2021 return to your 2022 estimated tax, or mailing a check 
Federal income tax is a pay-as-you-go tax. You must pay          or money order with a Form 1040-ES payment voucher.
it as you earn or receive income during the year. An em-
ployee usually has income tax withheld from their pay. If               EFTPS. 
you do not pay your tax through withholding, or do not pay              1. To enroll in EFTPS, go to EFTPS.gov or call 
enough tax that way, you might have to pay estimated tax.                800-555-4477.
Estimated  tax  payments.    You  generally  have  to  make             2. When you request a new EIN, you may be automati-
estimated  tax  payments  if  you  expect  to  owe  taxes,  in-          cally enrolled in EFTPS.
cluding  self-employment  tax  (discussed  later),  of  $1,000          3. Benefits of EFTPS include the following.
or more when you file your return. Use  Form 1040-ES to 
figure and pay the tax. If you do not have to make estima-               a. The chance of an error in making your payments 
ted tax payments, you can pay any tax due when you file                  is reduced.

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b. You receive immediate confirmation of every self-employment income reported on a tax return filed
transaction. within 3 years, 3 months, and 15 days after the tax year
you earned the income. If you file your tax return or report
Penalty for underpayment of tax. If you did not pay a change in your self-employment income after this time
enough income tax and self-employment tax for 2022 by limit, the SSA may change its records, but only to remove
withholding or by making estimated tax payments, you or reduce the amount. The SSA will not change its records
may have to pay a penalty on the amount not paid. The to increase your self-employment income.
IRS will figure the penalty for you and send you a bill. Or
you can use Form 2210, Underpayment of Estimated Tax Who must pay SE tax. You must pay SE tax and file
by Individuals, Estates, and Trusts, to see if you have to Schedule SE (Form 1040) if either of the following applies.
pay a penalty and to figure the penalty amount. For more
1. Your net earnings from self-employment (excluding
information, see Pub. 505.
church employee income) were $400 or more.
2. You had church employee income of $108.28 or
Self-Employment (SE) Tax more.
SE tax is a social security and Medicare tax primarily for The SE tax rules apply no matter how old you are
individuals who work for themselves. It is similar to the so- ! and even if you are already receiving social secur-
cial security and Medicare taxes withheld from the pay of CAUTION ity or Medicare benefits.
most wage earners.
SE tax rate. The SE tax rate on net earnings is 15.3%
If you earned income as a statutory employee, (12.4% social security tax plus 2.9% Medicare tax).
! you do not pay SE tax on that income. Social se-
CAUTION curity and Medicare tax should have already been Maximum earnings subject to SE tax. Only the first
withheld from those earnings. $147,000 of your combined wages, tips, and net earnings
in 2022 is subject to any combination of the 12.4% social
Social security coverage. Social security benefits are security part of SE tax, social security tax, or the Tier 1
available to self-employed persons just as they are to part of railroad retirement tax.
wage earners. Your payments of SE tax contribute to your All your combined wages, tips, and net earnings in
coverage under the social security system. Social security 2022 are subject to any combination of the 2.9% Medicare
coverage provides you with retirement benefits, disability part of SE tax, Medicare tax, or Medicare part of railroad
benefits, survivor benefits, and hospital insurance (Medi- retirement tax.
care) benefits. If wages and tips you receive as an employee are sub-
ject to either social security tax or the Tier 1 part of rail-
Be sure to report all of your self-employment in-
road retirement tax, or both, and total at least $147,000,
! come. By not reporting all of it, you could cause do not pay the 12.4% social security part of the SE tax on
CAUTION your social security benefits to be lower when you
any of your net earnings. However, you must pay the
retire.
2.9% Medicare part of the SE tax on all your net earnings.
How to become insured under social security. You Deduct one-half of your SE tax as an adjustment
must be insured under the social security system before TIP to income on line 15 of Schedule 1 (Form 1040).
you begin receiving social security benefits. You are in-
sured if you have the required number of credits (also
called quarters of coverage), discussed next. Additional Medicare Tax. A 0.9% Additional Medicare
Earning credits in 2022 and 2023. For 2022, you re- Tax may apply to you if your net earnings from self-em-
ceived one credit, up to a maximum of four credits, for ployment exceed one of the following threshold amounts
each $1,510 ($1,640 for 2023) of income subject to social (based on your filing status).
security taxes. Therefore, for 2022, if you had income • Married filing jointly—$250,000
(self-employment and wages) of $6,040 that was subject
to social security taxes, you receive four credits ($6,040 ÷ • Married filing separately—$125,000
$1,510). • Single, Head of household, or Qualifying surviving
For an explanation of the number of credits you must spouse—$200,000
have to be insured and the benefits available to you and If you have both wages and self-employment income,
your family under the social security program, consult your the threshold amount for applying the Additional Medicare
nearest SSA office. Tax on the self-employment income is reduced (but not
Making false statements to get or to increase so- below zero) by the amount of wages subject to Additional
Medicare Tax. Use Form 8959, Additional Medicare Tax,
! cial security benefits may subject you to penal-
CAUTION ties. to figure this tax.

More information. For information on methods of calcu-
The SSA time limit for posting self-employment in-
lating SE tax, see chapter 10.
come. Generally, the SSA will give you credit only for

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Table 1-2. Which Forms Must I File?
IF you are liable for: THEN use Form: DUE by:1

Income tax 1040 or 1040-SR, and Schedule C2 15th day of 4th month after end of
tax year.
Self-employment tax Schedule SE File with Form 1040 or Form 1040-SR.
Estimated tax 1040-ES 15th day of 4th, 6th, and 9th months of tax
year, and 15th day of 1st month after the end
of tax year.
Social security and Medicare taxes and income 941 or 944 April 30, July 31, October 31, and January 31.3
tax withholding
See Pub. 15.
Providing information on social security and W-2 (to employee) January 31.3
Medicare taxes and income tax withholding
W-2 and W-3 (to the Social Security January 31.3
Administration)
Federal unemployment tax (FUTA) 940 January 31.3
April 30, July 31, October 31, and January 31,
but only if the liability for unpaid tax is more
than $500.
Filing information returns for payments to See Information Returns Forms 1099—to the recipient by January 31
nonemployees and transactions with other and to the IRS by February 28 (March 31 if
persons filing electronically).4
Other forms—see the General Instructions for
Certain Information Returns.
Excise tax See Excise Taxes See the instructions for the forms.

1 If a due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday. For more information, see Pub. 509,
Tax Calendars.
2 File a separate schedule for each business.
3 See the form instructions if you go out of business, change the form of your business, or stop paying wages.
4 Form 1099-NEC—to the IRS by January 31 (even if filing electronically) if you are reporting nonemployee compensation.

If you incorrectly classify an employee as an inde-
pendent contractor, you may be held liable for
Employment Taxes CAUTION!
employment taxes for that worker plus a penalty.
If you have employees, you will need to file forms to report
employment taxes. Employment taxes include the follow- An independent contractor is someone who is self-em-
ing items. ployed. You generally do not have to withhold or pay any
taxes on payments made to an independent contractor.
• Social security and Medicare taxes.
• Federal income tax withholding.
• Federal unemployment tax (FUTA). Excise Taxes
For more information, see Pub. 15 (Circular E), Em- This section identifies some of the excise taxes you may
ployer's Tax Guide. That publication explains your tax re- have to pay and the forms you have to file if you do any of
sponsibilities as an employer. the following.
Do not reduce your deduction for social security • Manufacture or sell certain products.
! and Medicare taxes by the nonrefundable and re- • Operate certain kinds of businesses.
CAUTION fundable portions of the Families First Coronavi-
rus Response Act and American Rescue Plan Act of 2021 • Use various kinds of equipment, facilities, or products.
credits for qualified sick and family leave wages claimed • Receive payment for certain services.
on an employment tax return. Instead, report the credits
as income. For more information on excise taxes, see Pub. 510, Ex-
cise Taxes.
To help you determine whether the people working for
you are your employees, see Pub. 15-A. That publication
has information to help you determine whether an
individual is an independent contractor or an employee.

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Form 720. The federal excise taxes reported on Form sale anywhere other than in a permanent retail establish-
720, Quarterly Federal Excise Tax Return, consist of sev- ment.
eral broad categories of taxes, including the following.
Form 1099-NEC. File Form 1099-NEC, Nonemployee
• Environmental taxes on the sale or use of ozone-de- Compensation, for each person in the course of your busi-
pleting chemicals and imported products containing or ness to whom you have paid at least $600 during the year
manufactured with these chemicals. in:
• Communications and air transportation taxes. • Services performed by someone who is not your em-
• Fuel taxes. ployee (including parts and materials) (box 1),
• Tax on the first retail sale of heavy trucks, trailers, and • Cash payments for fish (or other aquatic life) you pur-
tractors. chase from anyone engaged in the trade or business
of catching fish (box 1), or
• Manufacturer’s taxes on the sale or use of a variety of
different articles. • Payments to an attorney (box 1).
• Tax on indoor tanning services. You must also file Form 1099-NEC for each person
from whom you have withheld any federal income tax (re-
Form 2290. There is a federal excise tax on the use of port in box 4) under the backup withholding rules regard-
certain trucks, truck tractors, and buses on public high- less of the amount of the payment.
ways. The tax applies to vehicles having a taxable gross
If you use Form 1099-NEC to report sales totaling
weight of 55,000 pounds or more. Report the tax on Form
$5,000 or more of consumer products, then you
2290, Heavy Highway Vehicle Use Tax Return. For more CAUTION!
are required to file Form 1099-NEC with the IRS
information, see the Instructions for Form 2290.
by January 31.
Depositing excise taxes. If you have to file a quarterly
excise tax return on Form 720, you may have to deposit Form W-2. You must file Form W-2 to report payments to
your excise taxes before the return is due. For details on your employees, such as wages, tips, and other compen-
depositing excise taxes, see the Instructions for Form sation; and withheld income, social security, and Medi-
720. care taxes. You can file Form W-2 online. For more infor-
mation about Form W-2, see the General Instructions for
Forms W-2 and W-3.

Information Returns Penalties. The law provides for the following penalties if
If you make or receive payments in your business, you you do not file Form(s) 1099-MISC, Form(s) 1099-NEC, or
may have to report them to the IRS on information returns. Form(s) W-2 or do not correctly report the information. For
The IRS compares the payments shown on the informa- more information, see the General Instructions for Certain
tion returns with each person's income tax return to see if Information Returns.
the payments were included in income. You must give a • Failure to file information returns. This penalty applies
copy of each information return you are required to file to if you do not file information returns by the due date,
the recipient or payer. In addition to the forms described do not include all required information, or report incor-
below, you may have to use other returns to report certain rect information.
kinds of payments or transactions. For more details on in-
formation returns and when you have to file them, see the • Failure to furnish correct payee statements. This pen-
General Instructions for Certain Information Returns. alty applies if you do not furnish a required statement
to a payee by the required date, do not include all re-
Form 1099-MISC. Use Form 1099-MISC, Miscellaneous quired information, or report incorrect information.
Information, to report certain payments you make in your Waiver of penalties. These penalties will not apply if
business. These payments include the following items. you can show that the failure was due to reasonable
• Rent payments of $600 or more, other than rents paid cause and not willful neglect.
to real estate agents. In addition, there is no penalty for failure to include all
required information, or for including incorrect information,
• Prizes and awards of $600 or more that are not for
on a de minimis (small) number of information returns if
services, such as winnings on TV or radio shows.
you correct the errors by August 1 of the year the returns
• Royalty payments of $10 or more. are due. (A de minimis number of returns is the greater of
• Payments to certain crew members by owners or op- 10 or / of 1% of the total number of returns you are re-1 2
erators of fishing boats. quired to file for the year.)

• Amounts paid for the purchase of fish for resale from Form 8300. You must file Form 8300, Report of Cash
any person engaged in the business of catching fish. Payments Over $10,000 Received in a Trade or Business,
You also use Form 1099-MISC to report your sales of if you receive more than $10,000 in cash in one transac-
$5,000 or more of consumer products to a person for re- tion, or two or more related business transactions. Cash
includes U.S. and foreign coin and currency. It also

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includes certain monetary instruments such as cashier's Penalties. There are civil and criminal penalties, in-
and traveler's checks and money orders. Cash does not cluding up to 5 years in prison, for not filing Form 8300, fil-
include a check drawn on an individual's personal account ing (or causing the filing of) a false or fraudulent Form
(personal check). For more information, see Pub. 1544, 8300, or structuring a transaction to evade reporting re-
Reporting Cash Payments of Over $10,000. quirements.

Table 1-3. Going Out of Business Checklists
(Note. The following checklists highlight the typical final forms and schedules you may need to file if you ever go out of
business. For more information, see the instructions for the listed forms.)
IF you are liable for: THEN you may need to:
Income tax File Schedule C with your Form 1040 or 1040-SR for the year in which you go out of business.
File Form 4797 with your Form 1040 or 1040-SR for each year in which you sell or exchange
property used in your business or in which the business use of certain section 179 or listed
property drops to 50% or less.
File Form 8594 with your Form 1040 or 1040-SR if you sold your business.

SE tax File Schedule SE with your Form 1040 or 1040-SR for the year in which you go out of business.

Employment taxes File Form 941 for the calendar quarter (or Form 944 for the year) in which you make final wage
payments. Note. Do not forget to check the box and enter the date final wages were paid on line
17 of Form 941 or line 14 of Form 944.
File Form 940 for the calendar year in which final wages were paid. Note. Do not forget to check
box d, Final: Business closed or stopped paying wages under Type of Return.
Information returns Provide Forms W-2 to your employees for the calendar year in which you make final wage
payments.
File Form W-3 to file Forms W-2.
Provide Form(s) 1099-MISC and Form(s) 1099-NEC to each person to whom you have paid at
least $600 for services (including parts and materials) during the calendar year in which you go
out of business.
File Form 1096 to file Form(s) 1099-MISC and Form(s) 1099-NEC.

Accounting Periods
When preparing a statement of income and expenses
(generally, your income tax return), you must use your
2. books and records for a specific interval of time called an
accounting period. The annual accounting period for your
income tax return is called a tax year. You can use one of
Accounting Periods and the following tax years.
Methods • A calendar tax year.
• A fiscal tax year.
Unless you have a required tax year, you adopt a tax year
Introduction by filing your first income tax return using that tax year. A
You must figure your taxable income and file an income required tax year is a tax year required under the Internal
tax return for an annual accounting period called a tax Revenue Code or the Income Tax Regulations.
year. Also, you must consistently use an accounting
method that clearly shows your income and expenses for Calendar tax year. A calendar tax year is 12 consecu-
the tax year. tive months beginning January 1 and ending December
31.
You must adopt the calendar tax year if any of the fol-
Useful Items
lowing apply.
You may want to see:
• You do not keep books.
Publication • You have no annual accounting period.
538 538 Accounting Periods and Methods • Your present tax year does not qualify as a fiscal year.
See chapter 12 for information about getting publications • Your use of the calendar tax year is required under the
and forms. Internal Revenue Code or the Income Tax Regula-
tions.

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If you filed your first income tax return using the calen- Business and personal items. You can account for
dar tax year and you later begin business as a sole pro- business and personal items under different accounting
prietor, you must continue to use the calendar tax year un- methods. For example, you can figure your business in-
less you get IRS approval to change it or are otherwise come under an accrual method, even if you use the cash
allowed to change it without IRS approval. For more infor- method to figure personal items.
mation, see Change in tax year, later.
If you adopt the calendar tax year, you must maintain Two or more businesses. If you have two or more sep-
your books and records and report your income and ex- arate and distinct businesses, you can use a different ac-
penses for the period from January 1 through December counting method for each if the method clearly reflects the
31 of each year. income of each business. They are separate and distinct
only if you maintain complete and separate books and re-
Fiscal tax year. A fiscal tax year is 12 consecutive cords for each business.
months ending on the last day of any month except De-
cember. A 52-53-week tax year is a fiscal tax year that Cash Method
varies from 52 to 53 weeks but does not have to end on
the last day of a month. Most individuals and many sole proprietors with no inven-
If you adopt a fiscal tax year, you must maintain your tory use the cash method because they find it easier to
books and records and report your income and expenses keep cash method records. However, if an inventory is
using the same tax year. necessary to account for your income, you must generally
For more information on a fiscal tax year, including a use an accrual method of accounting for sales and pur-
52-53-week tax year, see Pub. 538. chases, unless you are a small business taxpayer (de-
Change in tax year. Generally, you must file Form fined later in this chapter). For more information, see In-
1128, Application To Adopt, Change, or Retain a Tax ventories, later.
Year, to request IRS approval to change your tax year.
See the Instructions for Form 1128 for exceptions. If you Income
qualify for an automatic approval request, a user fee is not
required. If you do not qualify for automatic approval, a rul- Under the cash method, include in your gross income all
ing must be requested. See the Instructions for Form 1128 items of income you actually or constructively receive dur-
for information about user fees if you are requesting a rul- ing your tax year. If you receive property or services, you
ing. must include their fair market value in income.

Example. On December 30, 2021, a client sent you a
check for interior decorating services you provided to
Accounting Methods them. You received the check on January 4, 2022. You
An accounting method is a set of rules used to determine must include the amount of the check in income for 2022.
when and how income and expenses are reported. Your
Constructive receipt. You have constructive receipt of
accounting method includes not only the overall method
income when an amount is credited to your account or
of accounting you use, but also the accounting treatment
made available to you without restriction. You do not need
you use for any material item.
to have possession of it. If you authorize someone to be
You choose an accounting method for your business your agent and receive income for you, you are treated as
when you file your first income tax return that includes a having received it when your agent received it.
Schedule C for the business. After that, if you want to
change your accounting method, you must generally get Example. Interest is credited to your bank account in
IRS approval. See Change in Accounting Method, later. December 2022. You do not withdraw it or enter it into
your passbook until 2023. You must include it in your
Kinds of methods. Generally, you can use any of the fol- gross income for 2022.
lowing accounting methods.
Delaying receipt of income. You cannot hold checks
• Cash method. or postpone taking possession of similar property from
one tax year to another to avoid paying tax on the income.
• An accrual method.
You must report the income in the year the property is re-
• Special methods of accounting for certain items of in- ceived or made available to you without restriction.
come and expenses.
Example. A service contractor was entitled to receive
• Combination method using elements of two or more of
a $10,000 payment on a contract in December 2022.
the above.
They were told in December that their payment was avail-
You must use the same accounting method to figure able. At their request, they were not paid until January
your taxable income and to keep your books. Also, you 2023. They must include this payment in their 2022 in-
must use an accounting method that clearly shows your come because it was constructively received in 2022.
income.
Checks. Receipt of a valid check by the end of the tax
year is constructive receipt of income in that year, even if

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you cannot cash or deposit the check until the following Example. You are a calendar year accrual method
year. taxpayer. You sold a computer on December 28, 2022.
You billed the customer in the first week of January 2023,
Example. Dr. Redd received a check for $500 on De- but you did not receive payment until February 2023. You
cember 30, 2022, from a patient. Dr. Redd could not de- must include the amount received for the computer in your
posit the check in their business account until January 3, 2022 income.
2023. Dr. Redd must include this fee in income for 2022.
Debts paid by another person or canceled. If your Income—Special Rules
debts are paid by another person or are canceled by your
creditors, you may have to report part or all of this debt re- The following are special rules that apply to advance pay-
lief as income. If you receive income in this way, you con- ments, estimating income, and changing a payment
structively receive the income when the debt is canceled schedule for services.
or paid. For more information, see Canceled Debt under
Estimated income. If you include a reasonably estima-
Kinds of Income in chapter 5.
ted amount in gross income, and later determine the exact
Repayment of income. If you include an amount in in- amount is different, take the difference into account in the
come and in a later year you have to repay all or part of it, tax year in which you make the determination.
you can usually deduct the repayment in the year in which
Change in payment schedule for services. If you per-
you make it. If the amount you repay is over $3,000, a
form services for a basic rate specified in a contract, you
special rule applies. For details about the special rule, see
must accrue the income at the basic rate, even if you
Repayments in chapter 11 of Pub. 535.
agree to receive payments at a lower rate until you com-
plete the services and then receive the difference.
Expenses
Advance payments. Generally, you report an advance
Under the cash method, you generally deduct expenses payment as income in the year you receive the payment.
in the tax year in which you actually pay them. This in- However, if you receive an advance payment, you can
cludes business expenses for which you contest liability. elect to postpone including the advance payment in in-
However, you may not be able to deduct an expense paid come until the next tax year. You cannot postpone includ-
in advance or you may be required to capitalize certain ing any payment beyond that tax year.
costs, as explained later under Uniform Capitalization For more information, see Pub. 538 and section 451.
Rules.
Expenses
Expenses paid in advance. You can deduct an ex-
pense you pay in advance only in the year to which it ap- Under an accrual method of accounting, you generally de-
plies. duct or capitalize a business expense when both the fol-
lowing apply.
Example. You are a calendar year taxpayer and you
pay $1,000 in 2022 for a business insurance policy effec- 1. The all-events test has been met. The test has been
tive for 1 year, beginning July 1. You can deduct $500 in met when:
2022 and $500 in 2023.
a. All events have occurred that fix the fact of liability,
and
Accrual Method
b. The liability can be determined with reasonable
accuracy.
Under an accrual method of accounting, you generally re-
port income in the year earned and deduct or capitalize 2. Economic performance has occurred.
expenses in the year incurred. The purpose of an accrual
method of accounting is to match income and expenses in Economic performance. You generally cannot deduct
the correct year. or capitalize a business expense until economic perform-
ance occurs. If your expense is for property or services
Income—General Rule provided to you, or for your use of property, economic per-
formance occurs as the property or services are provided
Under an accrual method, you generally include an or as the property is used. If your expense is for property
amount in your gross income for the tax year in which all or services you provide to others, economic performance
events that fix your right to receive the income have occur- occurs as you provide the property or services. An excep-
red and you can determine the amount with reasonable tion allows certain recurring items to be treated as incur-
accuracy. For a taxpayer with an applicable financial red during a tax year even though economic performance
statement or other financial statement as the Secretary has not occurred. For more information on economic per-
may specify, the all-events test for an item of gross in- formance, see Economic Performance under Accrual
come is considered met no later than when taken into ac- Method in Pub. 538.
count in an applicable financial statement or such other fi-
nancial statement.

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Example. You are a calendar year taxpayer and use Inventories
an accrual method of accounting. You buy office supplies
in December 2022. You receive the supplies and the bill in Generally, if you produce, purchase, or sell merchandise
December, but you pay the bill in January 2023. You can in your business, you must keep an inventory and use an
deduct the expense in 2022 because all events that fix the accrual method for purchases and sales of merchandise.
fact of liability have occurred, the amount of the liability
could be reasonably determined, and economic perform- Exception for small business taxpayers. If you are a
ance occurred in that year. small business taxpayer, you can choose not to keep an
Your office supplies may qualify as a recurring ex- inventory, but you must still use a method of accounting
pense. In that case, you can deduct them in 2022 even if for inventory that clearly reflects income. If you choose not
the supplies are not delivered until 2023 (when economic to keep an inventory, you won’t be treated as failing to
performance occurs). clearly reflect income if your method of accounting for in-
ventory treats inventory as non-incidental material or sup-
Keeping inventories. When the production, purchase, plies, or conforms to your financial accounting treatment
or sale of merchandise is an income-producing factor in of inventories. If, however, you choose to keep an inven-
your business, you must generally take inventories into tory, you must generally use an accrual method of ac-
account at the beginning and the end of your tax year, un- counting and value the inventory each year to determine
less you are a small business taxpayer. If you must ac- your cost of goods sold in Part III of Schedule C.
count for an inventory, you must generally use an accrual
method of accounting for your purchases and sales. For Small business taxpayer. You qualify as a small
more information, see Inventories, later. business taxpayer if you (a) have average annual gross
receipts of $27 million or less for the 3 prior tax years, and
Special rule for related persons. You cannot deduct (b) are not a tax shelter (as defined in section 448(d)(3)). If
business expenses and interest owed to a related person your business has not been in existence for all of the
who uses the cash method of accounting until you make 3-tax-year period used in figuring average gross receipts,
the payment and the corresponding amount is includible base your average on the period it has existed, and if your
in the related person's gross income. Determine the rela- business has a predecessor entity, include the gross re-
tionship, for this rule, as of the end of the tax year for ceipts of the predecessor entity from the 3-tax-year period
which the expense or interest would otherwise be deducti- when figuring average gross receipts. If your business (or
ble. If a deduction is not allowed under this rule, the rule predecessor entity) had short tax years for any of the
will continue to apply even if your relationship with the per- 3-tax-year period, annualize your business’ gross receipts
son ends before the expense or interest is includible in the for the short tax years that are part of the 3-tax-year pe-
gross income of that person. riod. See Pub. 538 for more information.
Related persons include members of your immediate
family, including siblings (either whole or half), your Treating inventory as non-incidental material or
spouse, ancestors, and lineal descendants. For a list of supplies. If you account for inventories as materials and
other related persons, see section 267 of the Internal Rev- supplies that are not incidental, you deduct the amounts
enue Code. paid or incurred to acquire or produce the inventoriable
items treated as non-incidental materials and supplies in
the year in which they are first used or consumed in your
Combination Method operations. Inventory treated as non-incidental materials
and supplies is used or consumed in your business in the
You can generally use any combination of cash, accrual,
year you provide the inventory to your customers.
and special methods of accounting if the combination
clearly shows your income and expenses and you use it Financial accounting treatment of inventories.
consistently. However, the following restrictions apply. Your financial accounting treatment of inventories is deter-
mined with regard to the method of accounting you use in
• If an inventory is necessary to account for your in-
your applicable financial statement (as defined in section
come, you must generally use an accrual method for
451(b)(3)) or, if you do not have an applicable financial
purchases and sales. (See, however, Inventories,
statement, with regard to the method of accounting you
later.) You can use the cash method for all other items
use in your books and records that have been prepared in
of income and expenses.
accordance with your accounting procedures.
• If you use the cash method for figuring your income,
you must use the cash method for reporting your ex- Changing your method of accounting for inven-
penses. tory. If you want to change your method of accounting for
inventory, you must file Form 3115, Application for
• If you use an accrual method for reporting your expen- Change in Accounting Method. See Change in Account-
ses, you must use an accrual method for figuring your ing Method, later.
income.
Items included in inventory. If you are required to ac-
• If you use a combination method that includes the
count for inventories, include the following items when ac-
cash method, treat that combination method as the
counting for your inventory.
cash method.
• Merchandise or stock in trade.

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• Raw materials. • Depreciation, discussed in Pub. 946, How To Depreci-
ate Property.
• Work in process.
• Finished products. • Installment sales, discussed in Pub. 537, Installment
Sales.
• Supplies that physically become a part of the item in-
tended for sale. • Long-term contract methods of accounting. See sec-
tion 460.
Valuing inventory. You must value your inventory at the
beginning and end of each tax year to determine your cost Change in Accounting Method
of goods sold (Schedule C, line 42). To determine the
value of your inventory, you need a method for identifying Once you have set up your accounting method, you must
the items in your inventory and a method for valuing these generally get IRS approval before you can change to an-
items. other method. A change in your accounting method in-
Inventory valuation rules cannot be the same for all cludes a change in:
kinds of businesses. The method you use to value your in-
1. Your overall method, such as from cash to an accrual
ventory must conform to generally accepted accounting
method; and
principles for similar businesses and must clearly reflect
income. Your inventory practices must be consistent from 2. Your treatment of any material item.
year to year.
To get approval, you must file Form 3115. You can get
More information. For more information about invento- IRS approval to change an accounting method under ei-
ries, see Pub. 538. ther the automatic change procedures or the advance
consent request procedures. You may have to pay a user
fee. For more information, see the Instructions for Form
Uniform Capitalization Rules 3115.

Under the uniform capitalization rules, you must capitalize Automatic change procedures. Certain taxpayers can
the direct costs and part of the indirect costs for produc- presume to have IRS approval to change their method of
tion or resale activities. Include these costs in the basis of accounting. The approval is granted for the tax year for
property you produce or acquire for resale, rather than which the taxpayer requests a change (year of change), if
claiming them as a current deduction. You recover the the taxpayer complies with the provisions of the automatic
costs through depreciation, amortization, or cost of goods change procedures. No user fee is required for an appli-
sold when you use, sell, or otherwise dispose of the prop- cation filed under an automatic change procedure gener-
erty. ally covered in Revenue Procedure 2015-13, 2015-5
I.R.B. 419, which is available at IRS.gov/IRB/
Activities subject to the uniform capitalization rules.
2015-05_IRB#RP-2015-13 (or its successor).
You may be subject to the uniform capitalization rules if
Generally, you must use Form 3115 to request an auto-
you do any of the following, unless the property is pro-
matic change. For more information, see the Instructions
duced for your use other than in a business or an activity
for Form 3115.
carried on for profit.
• Produce real or tangible personal property. For this
purpose, tangible personal property includes a film,
sound recording, videotape, book, or similar property.
• Acquire property for resale.
3.
Exceptions. These rules do not apply to the following.
1. Small business taxpayers, defined earlier under In-
ventories. Dispositions of Business

2. Property you produce if your indirect costs of produc- Property
ing the property are $200,000 or less.

Special Methods Introduction
If you dispose of business property, you may have a gain
There are special methods of accounting for certain items
or loss that you report on your tax return. However, in
of income or expense. These include the following.
some cases, you may have a gain that is not taxable or a
• Amortization, discussed in chapter 8 of Pub. 535. loss that is not deductible. This chapter discusses
• Bad debts, discussed in chapter 10 of Pub. 535. whether you have a disposition, how to figure the gain or
loss, and where to report the gain or loss.
• Depletion, discussed in chapter 9 of Pub. 535.

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Useful Items year of the sale. If you finance the buyer's purchase of
You may want to see: your property, instead of having the buyer get a loan or
mortgage from a third party, you probably have an install-
Publication ment sale.
For more information about installment sales, see Pub.
544 544 Sales and Other Dispositions of Assets
537.
Form (and Instructions)
Sale of a business. The sale of a business is usually not
4797 4797 Sales of Business Property a sale of one asset. Instead, all the assets of the business
Sch D (Form 1040) Sch D (Form 1040) Capital Gains and Losses are sold. Generally, when this occurs, each asset is trea-
ted as being sold separately for determining the treatment
See chapter 12 for information about getting publications of gain or loss.
and forms. Both the buyer and seller involved in the sale of a busi-
ness must report to the IRS the allocation of the sales
price among the business assets. Use Form 8594, Asset
What Is a Disposition of Acquisition Statement Under Section 1060, to provide this
Property? information. The buyer and seller should each attach
Form 8594 to their federal income tax return for the year in
A disposition of property includes the following transac- which the sale occurred.
tions. For more information about the sale of a business, see
chapter 2 of Pub. 544.
• You sell property for cash or other property.
• You exchange property for other property.
• You receive money as a tenant for the cancellation of How Do I Figure a Gain or
a lease. Loss?
• You receive money for granting the exclusive use of a
copyright throughout its life in a particular medium. Table 3-1. How To Figure a Gain or Loss
• You transfer property to satisfy a debt.
IF your... THEN you have a...
• You abandon property. adjusted basis is more than the amount
• Your bank or other financial institution forecloses on realized loss.
your mortgage or repossesses your property. amount realized is more than the
• Your property is damaged, destroyed, or stolen, and adjusted basis gain.
you receive property or money in payment.
Basis, adjusted basis, amount realized, fair market
• Your property is condemned, or disposed of under the value, and amount recognized are defined next. You need
threat of condemnation, and you receive property or to know these definitions to figure your gain or loss.
money in payment.
Basis. The cost or purchase price of property is usually
• You give property away. its basis for figuring the gain or loss from its sale or other
For details about damaged, destroyed, or stolen property, disposition. However, if you acquired the property by gift,
see Pub. 547, Casualties, Disasters, and Thefts. For de- by inheritance, or in some way other than buying it, you
tails about other dispositions, see chapter 1 of Pub. 544. must use a basis other than its cost. For more information
about basis, see Pub. 551, Basis of Assets.
Nontaxable exchanges. Certain exchanges of property
are not taxable. This means any gain from the exchange Adjusted basis. The adjusted basis of property is your
is not recognized and you cannot deduct any loss. Your original cost or other basis plus certain additions, and mi-
gain or loss will not be recognized until you sell or other- nus certain deductions such as depreciation and casualty
wise dispose of the property you receive. losses. In determining gain or loss, the costs of transfer-
ring property to a new owner, such as selling expenses,
Like-kind exchanges. A like-kind exchange is the ex-
are added to the adjusted basis of the property.
change of property for other like-kind property. It is the
most common type of nontaxable exchange. To be a Amount realized. The amount you realize from a dispo-
like-kind exchange, the property traded and the property sition is the total of all money you receive plus the fair
received must be both (i) real property, and (ii) business market value of all property or services you receive. The
or investment property. amount you realize also includes any of your liabilities that
Report the exchange of like-kind property on Form were assumed by the buyer and any liabilities to which the
8824, Like-Kind Exchanges. For more information about property you transferred is subject, such as real estate
like-kind exchanges, see chapter 1 of Pub. 544. taxes or a mortgage.
Installment sales. An installment sale is a sale of prop-
erty where you receive at least one payment after the tax

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Fair market value. Fair market value is the price at Dispositions of business property and depreciable
which the property would change hands between a buyer property. Use Form 4797. If you have taxable gain, you
and a seller, neither having to buy or sell, and both having may also have to use Schedule D (Form 1040).
reasonable knowledge of all necessary facts.
Like-kind exchanges. Use Form 8824. You may also
Amount recognized. Your gain or loss realized from a have to use Form 4797 and Schedule D (Form 1040).
disposition of property is usually a recognized gain or loss
for tax purposes. Recognized gains must be included in Installment sales. Use Form 6252, Installment Sale In-
gross income. Recognized losses are deductible from come. You may also have to use Form 4797 and Sched-
gross income. However, a gain or loss realized from cer- ule D (Form 1040).
tain exchanges of property is not recognized. See
Casualties and thefts. Use Form 4684, Casualties and
Nontaxable exchanges, earlier. Also, you cannot deduct a
Thefts. You may also have to use Form 4797.
loss from the disposition of property held for personal use.
Condemned property. Use Form 4797. You may also
Is My Gain or Loss Ordinary or have to use Schedule D (Form 1040).
Capital?

You must classify your gains and losses as either ordinary
or capital gains or losses. You must do this to figure your
net capital gain or loss. Generally, you will have a capital
gain or loss if you dispose of a capital asset. For the most 4.
part, everything you own and use for personal purposes or
investment is a capital asset.
General Business Credits
Certain property you use in your business is not a capi-
tal asset. A gain or loss from a disposition of this property
is an ordinary gain or loss. However, if you held the prop- Introduction
erty longer than 1 year, you may be able to treat the gain
Your general business credit for the year consists of your
or loss as a capital gain or loss. These gains and losses
carryforward of business credits from prior years plus the
are called section 1231 gains and losses.
total of your current year business credits. In addition,
For more information about ordinary and capital gains your general business credit for the current year may be
and losses, see chapters 2 and 3 of Pub. 544. increased later by the carryback of business credits from
later years. You subtract this credit directly from your tax.
Is My Capital Gain or Loss Short Term
Useful Items
or Long Term? You may want to see:

If you have a capital gain or loss, you must determine Form (and Instructions)
whether it is long term or short term. Whether a gain or
loss is long or short term depends on how long you own 3800 3800 General Business Credit
the property before you dispose of it. The time you own 6251 6251 Alternative Minimum Tax—Individuals
property before disposing of it is called the holding period.
See chapter 12 for information about getting publications
Table 3-2. Do I Have a Short-Term or and forms.
Long-Term Gain or Loss?

IF you hold the property... THEN you have a... Business Credits
1 year or less short-term capital gain or loss.
All of the following credits are part of the general business
more than 1 year long-term capital gain or loss. credit. The form you use to figure each credit is shown in
parentheses. You will also have to complete Form 3800.
For more information about short-term and long-term
capital gains and losses, see chapter 4 of Pub. 544. Some credits have expiration dates. Check the instruc-
tions for each credit to make sure it is available for 2022.

Alternative fuel vehicle refueling property credit
Where Do I Report Gains and (Form 8911). This credit applies to the cost of any quali-
Losses? fied fuel vehicle refueling property. For more information,
see Form 8911.
Report gains and losses from the following dispositions on
the forms indicated. The instructions for the forms explain Alternative motor vehicle credit (Form 8910). For
how to fill them out. more information, see Form 8910.

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Biodiesel, Renewable Diesel, or Sustainable Aviation ble wholesalers of distilled spirits. For more information,
Fuel Mixture Credit (Form 8864). For more information, see Form 8906.
see Form 8864.
Employee retention credit for employers affected by
Biofuel producer credit (Form 6478). For more infor- qualified disasters (Form 5884-A). You may qualify for
mation, see Form 6478. this credit if you continued to pay or incur wages after your
business became inoperable because of damage from
Carbon oxide sequestration credit (Form 8933). This certain federally declared disasters. For more information,
credit is for carbon oxide that is captured at a qualified fa- see Form 5884-A.
cility and disposed of in secure geological storage or used
in a qualified enhanced oil or natural gas recovery project. Employer credit for paid family and medical leave
For more information, see Form 8933. (Form 8994). This credit applies for wages paid to quali-
fying employees while they are on family and medical
Credit for employer social security and Medicare leave, subject to certain conditions. For more information,
taxes paid on certain employee tips (Form 8846). see Form 8994.
This credit is generally equal to your (employer's) portion
of social security and Medicare taxes paid on tips re- Empowerment zone employment credit (Form 8844).
ceived by employees of your food and beverage estab- You may qualify for this credit if you have employees and
lishment where tipping is customary. The credit applies re- are engaged in a business in an empowerment zone for
gardless of whether the food is consumed on or off your which the credit is available. For more information, see
business premises. For more information, see Form 8846. Form 8844.

Credit for employer differential wage payments Energy efficient home credit (Form 8908). This credit
(Form 8932). This credit provides businesses with an in- is available for eligible contractors of certain homes sold
centive to continue to pay wages to an employee perform- for use as a residence. For more information, see Form
ing services on active duty in the uniformed services of 8908.
the United States for a period of more than 30 days. For
more information, see Form 8932. Investment credit (Form 3468). The investment credit
is the total of the several credits. For more information,
Credit for employer-provided childcare facilities and see Form 3468.
services (Form 8882). This credit applies to the quali-
fied expenses you paid for employee childcare and quali- Low sulfur diesel fuel production credit (Form 8896).
fied expenses you paid for childcare resource and referral For more information, see Form 8896.
services. For more information, see Form 8882.
Low-income housing credit (Form 8586). This credit
Credit for increasing research activities (Form 6765). generally applies to each qualified low-income building
This credit is designed to encourage businesses to in- placed in service after 1986. For more information, see
crease the amounts they spend on research and experi- Form 8586.
mental activities, including energy research. For more in-
New markets credit (Form 8874). This credit is for
formation, see Form 6765.
qualified equity investments made in qualified community
Credit for small employer health insurance premi- development entities. For more information, see Form
ums (Form 8941). This credit applies to the cost of cer- 8874.
tain health insurance coverage you provide to certain em-
Orphan drug credit (Form 8820). This credit applies to
ployees. For more information, see Form 8941.
qualified expenses incurred in testing certain drugs for
Credit for small employer pension plan startup costs rare diseases and conditions. For more information, see
(Form 8881). This credit applies to pension plan startup Form 8820.
costs of a new qualified defined benefit or defined contri-
Qualified plug-in electric drive motor vehicle credit
bution plan (including a section 401(k) plan), SIMPLE
(Form 8936). This credit is for certain new qualified
plan, or SEP plan. For more information, see Pub. 560,
plug-in electric vehicles placed in service during the tax
Retirement Plans for Small Business.
year. For more information, see Form 8936.
Disabled access credit (Form 8826). This credit is a
Qualified railroad track maintenance credit (Form
nonrefundable tax credit for an eligible small business that
8900). This credit applies to qualified railroad track main-
pays or incurs expenses to provide access to persons
tenance expenditures paid or incurred during the tax year.
who have disabilities. You must pay or incur the expenses
For more information, see Form 8900.
to enable your business to comply with the Americans
with Disabilities Act of 1990. For more information, see Renewable electricity production credit (Form 8835).
Form 8826. This credit is for renewable energy sources produced in
the United States or U.S. possessions from qualified en-
Distilled spirits credit (Form 8906). This credit is avail-
ergy resources at a qualified facility. For more information,
able to distillers and importers of distilled spirits and eligi-
see Form 8835.

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Credit for small employer pension plan startup costs Payment card and third-party network transactions.
and auto-enrollment (Form 8881). You may qualify for If you are in a business, you may receive a Form 1099-K
this credit if you are a small employer who includes and representing total dollar amount of total reportable pay-
maintains an automatic contribution arrangement in an ment transactions. This may not be the amount you
employer-sponsored retirement plan. For more informa- should report as income, as it may not include all the re-
tion, see Form 8881. ceipts and it may include items that are not included in
your receipts (such as sales tax).
Work opportunity credit (Form 5884). This credit pro-
vides businesses with an incentive to hire individuals from Business income deduction. Income you report on
targeted groups that have a particularly high unemploy- Schedule C may be qualified business income and entitle
ment rate or other special employment needs. For more you to a deduction on Form 1040 or 1040-SR, line 13. See
information, see Form 5884. Form 8995-A or Form 8995 to figure your deduction, if
any.

How To Claim the Credit
Kinds of Income
To claim a general business credit, you will first have to
get the forms you need to claim your current year busi- You must report on your tax return all income you receive
ness credits. from your business unless it is excluded by law. In most
cases, your business income will be in the form of cash,
In addition to the credit form, you also need to file Form checks, and credit card charges. But business income
3800. can be in other forms, such as property or services. These
and other types of income are explained next.
If you are a U.S. citizen who has business income
! from sources outside the United States (foreign
CAUTION income), you must report that income on your tax
5. return unless it is exempt from tax under U.S. law. If you
live outside the United States, you may be able to exclude
part or all of your foreign-source business income. For de-
Business Income tails, see Pub. 54, Tax Guide for U.S. Citizens and Resi-
dent Aliens Abroad.

Introduction
Bartering for Property or Services
This chapter primarily explains business income and how
to account for it on your tax return and what items are not Bartering is an exchange of property or services. You
considered income, and it gives guidelines for selected must include in your gross receipts, at the time received,
occupations. the fair market value of property or services you receive in
If there is a connection between any income you re- exchange for something else. If you exchange services
ceive and your business, the income is business income. with another person and you both have agreed ahead of
A connection exists if it is clear that the payment of in- time on the value of the services, that value will be accep-
come would not have been made if you did not have the ted as the fair market value unless the value can be
business. shown to be otherwise.
You can have business income even if you are not in-
volved in the activity on a regular full-time basis. Income Example 1. You are a self-employed lawyer. You per-
from work you do on the side in addition to your regular form legal services for a client, a small corporation. In pay-
job can be business income. For example, you may be in ment for your services, you receive shares of stock in the
the business of providing services for a ride-sharing busi- corporation. You must include the fair market value of the
ness as a second job. shares in income.
You report most business income, such as income
Example 2. You are an artist and create a work of art
from selling your products or services, on Schedule C. But
to compensate your landlord for the rent-free use of your
you report the income from the sale of business assets,
apartment. You must include the fair rental value of the
such as land and office buildings, on other forms instead
apartment in your gross receipts. Your landlord must in-
of Schedule C. For information on selling business assets,
clude the fair market value of the work of art in their rental
see chapter 3.
income.
Nonemployee compensation. Business income in-
Example 3. You are a self-employed accountant. Both
cludes amounts you received in your business that were
you and a house painter are members of a barter club, an
properly shown on Forms 1099-NEC. This includes
organization that each year gives its members a directory
amounts reported as nonemployee compensation in box 1
of members and the services each member provides.
of the form. You can find more information in the instruc-
tions on the back of the Form 1099-NEC you received.

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Members get in touch with other members directly and you are not a real estate dealer or the kind of owner de-
bargain for the value of the services to be performed. scribed in the preceding sentence, report the rental in-
In return for accounting services you provided for the come and expenses on Schedule E. For more informa-
house painter's business, the house painter painted your tion, see Pub. 527, Residential Rental Property.
home. You must include in gross receipts the fair market
value of the services you received from the house painter. Real estate dealer. You are a real estate dealer if you
The house painter must include the fair market value of are engaged in the business of selling real estate to cus-
your accounting services in their gross receipts. tomers with the purpose of making a profit from those
sales. Rent you receive from real estate held for sale to
Example 4. You are a member of a barter club that customers is subject to SE tax. However, rent you receive
uses credit units to credit or debit members' accounts for from real estate held for speculation or investment is not
goods or services provided or received. As soon as units subject to SE tax.
are credited to your account, you can use them to buy
goods or services or sell or transfer the units to other Trailer park owner. Rental income from a trailer park is
members. subject to SE tax if you are a self-employed trailer park
You must include the value of credit units you received owner who provides trailer lots and facilities and substan-
in your gross receipts for the tax year in which the units tial services for the convenience of your tenants.
are credited to your account. You are generally considered to provide substantial
The dollar value of units received for services by an services for tenants if they are primarily for the tenants'
employee of the club, who can use the units in the same convenience and are not normally provided to maintain
manner as other members, must be included in the em- the lots in a condition for occupancy. Services are sub-
ployee's gross income for the tax year in which received. It stantial if the compensation for the services makes up a
is wages subject to social security and Medicare taxes material part of the tenants' rental payments.
(FICA), FUTA taxes, and income tax withholding. See Examples of services that are not normally provided for
Pub. 15. the tenants' convenience include supervising and main-
taining a recreational hall provided by the park, distribut-
Example 5. You operate a plumbing business and use ing a monthly newsletter to tenants, operating a laundry
the cash method of accounting. You join a barter club and facility, and helping tenants buy or sell their trailers.
agree to provide plumbing services to any member for a Examples of services that are normally provided to
specified number of hours. Each member has access to a maintain the lots in a condition for tenant occupancy in-
directory that lists the members of the club and the serv- clude city sewerage, electrical connections, and road-
ices available. ways.
Members contact each other directly and request serv-
ices to be performed. You are not required to provide Hotels, boarding houses, and apartments. Rental in-
services unless requested by another member, but you come you receive for the use or occupancy of hotels,
can use as many of the offered services as you wish with- boarding houses, or apartment houses is subject to SE
out paying a fee. tax if you provide services for the occupants.
You must include the fair market value of any services Generally, you are considered to provide services for
you receive from club members in your gross receipts the occupants if the services are primarily for their con-
when you receive them even if you have not provided any venience and are not services normally provided with the
services to club members. rental of rooms for occupancy only. An example of a serv-
ice that is not normally provided for the convenience of the
Information returns. If you are involved in a bartering occupants is maid service. However, providing heat and
transaction, you may have to file either of the following light, cleaning stairways and lobbies, and collecting trash
forms. are services normally provided for the occupants' conven-
ience.
• Form 1099-B, Proceeds From Broker and Barter Ex-
change Transactions. Prepaid rent. Advance payments received under a lease
• Form 1099-MISC. that does not put any restriction on their use or enjoyment
are income in the year you receive them. This is generally
For information about these forms, see the General In-
true no matter what accounting method or period you use.
structions for Certain Information Returns.
Lease bonus. A bonus you receive from a lessee for
Real Estate Rents granting a lease is an addition to the rent. Include it in your
gross receipts in the year received.
If you are a real estate dealer who receives income from
renting real property or an owner of a hotel, motel, etc., Lease cancellation payments. Report payments you
who provides services (maid services, etc.) for guests, re- receive from your lessee for canceling a lease in your
port the rental income and expenses on Schedule C. If gross receipts in the year received.

Payments to third parties. If your lessee makes pay-
ments to someone else under an agreement to pay your
debts or obligations, include the payments in your gross

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receipts when the lessee makes the payments. A com- Canceled Debt
mon example of this kind of income is a lessee's payment
of your property taxes on leased real property. The following explain the general rule for including can-
celed debt in income and the exceptions to the general
Settlement payments. Payments you receive in settle- rule.
ment of a lessee's obligation to restore the leased prop-
erty to its original condition are income in the amount that
General Rule
the payments exceed the adjusted basis of the leasehold
improvements destroyed, damaged, removed, or discon- Generally, if your debt is canceled or forgiven, other than
nected by the lessee. as a gift or bequest to you, you must include the canceled
amount in your gross income for tax purposes. Report the
Personal Property Rents canceled amount on line 6 of Schedule C if you incurred
the debt in your business. If the debt is a nonbusiness
If you are in the business of renting personal property debt, report the canceled amount on line 8c of Schedule 1
(equipment, vehicles, formal wear, etc.), include the rental (Form 1040).
amount you receive in your gross receipts on Schedule C.
Prepaid rent and other payments described under Real Exceptions
Estate Rents, earlier, can also be received for renting per-
sonal property. If you receive any of those payments, in- The following discussion covers some exceptions to the
clude them in your gross receipts as explained in that dis- general rule for canceled debt.
cussion.
Price reduced after purchase. If you owe a debt to the
seller for property you bought and the seller reduces the
Interest and Dividend Income
amount you owe, you generally do not have income from
Interest and dividends may be considered business in- the reduction. Unless you are bankrupt or insolvent, treat
come. the amount of the reduction as a purchase price adjust-
ment and reduce your basis in the property.
Interest. Interest received on notes receivable that you
have accepted in the ordinary course of business is busi- Deductible debt. You do not realize income from a can-
ness income. Interest received on loans is business in- celed debt to the extent the payment of the debt would
come if you are in the business of lending money. have led to a deduction.

Uncollectible loans. If a loan payable to you be- Example. You get accounting services for your busi-
comes uncollectible during the tax year and you use an ness on credit. Later, you have trouble paying your busi-
accrual method of accounting, you must include in gross ness debts, but you are not bankrupt or insolvent. Your
income interest accrued up to the time the loan became accountant forgives part of the amount you owe for the ac-
uncollectible. If the accrued interest later becomes uncol- counting services. How you treat the canceled debt de-
lectible, you may be able to take a bad debt deduction. pends on your method of accounting.
See Bad Debts in chapter 8.
• Cash method—You do not include the canceled debt
Unstated interest. If little or no interest is charged on in income because payment of the debt would have
an installment sale, you may have to treat a part of each been deductible as a business expense.
payment as unstated interest. See Unstated Interest and • Accrual method—You include the canceled debt in in-
Original Issue Discount (OID) in Pub. 537. come because the expense was deductible when you
incurred the debt.
Dividends. Generally, dividends are business income to
dealers in securities. For most sole proprietors and statu- For information on the cash and accrual methods of ac-
tory employees, however, dividends are nonbusiness in- counting, see chapter 2.
come. If you hold stock as a personal investment sepa-
rately from your business activity, the dividends from the Exclusions
stock are nonbusiness income.
If you receive dividends from business insurance pre- Do not include canceled debt in income in the following
miums you deducted in an earlier year, you must report all situations. However, you may be required to file Form
or part of the dividend as business income on your return. 982, Reduction of Tax Attributes Due to Discharge of In-
To find out how much you have to report, see debtedness. For more information, see Form 982.
Recovery of items previously deducted under Other In- 1. The cancellation takes place in a bankruptcy case un-
come, later. der title 11 of the U.S. Code (relating to bankruptcy).
See Pub. 908, Bankruptcy Tax Guide.
2. The cancellation takes place when you are insolvent.
You can exclude the canceled debt to the extent you
are insolvent. See Pub. 4681, Canceled Debts, Fore-
closures, Repossessions, and Abandonments.

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3. The canceled debt is a qualified farm debt owed to a a. The outstanding principal of qualified real property
qualified person. See chapter 3 of Pub. 225, Farmer's business debt (immediately before the cancella-
Tax Guide. tion); over
4. The canceled debt is a qualified real property busi- b. The fair market value (immediately before the can-
ness debt. This situation is explained later. cellation) of the business real property that is se-
curity for the debt, reduced by the outstanding
5. The canceled debt is qualified principal residence in-
principal amount of any other qualified real prop-
debtedness which is discharged after 2006. See the
erty business debt secured by this property imme-
Instructions for Form 982 for more information about
diately before the cancellation.
this exclusion.
2. The total adjusted bases of depreciable real property
If a canceled debt is excluded from income because it
held by you immediately before the cancellation.
takes place in a bankruptcy case, the exclusions in situa-
These adjusted bases are determined after any basis
tions 2 through 5 do not apply. If it takes place when you
reduction due to a cancellation in bankruptcy or insol-
are insolvent, the exclusions in situations 3 and 4 do not
vency, or of qualified farm debt. Do not take into ac-
apply to the extent you are insolvent.
count depreciable real property acquired in contem-
Debt. For purposes of this discussion, debt includes any plation of the cancellation.
debt for which you are liable or which attaches to property Election. To make this election, complete Form 982
you hold. and attach it to your income tax return for the tax year in
which the cancellation occurs. You must file your return by
Qualified real property business debt. You can elect
the due date (including extensions). If you timely filed your
to exclude (up to certain limits) the cancellation of quali-
return for the year without making the election, you can
fied real property business debt. If you make the election,
still make the election by filing an amended return within 6
you must reduce the basis of your depreciable real prop-
months of the due date of the return (excluding exten-
erty by the amount excluded. Make this reduction at the
sions). For more information, see When To File in the form
beginning of your tax year following the tax year in which
instructions.
the cancellation occurs. However, if you dispose of the
property before that time, you must reduce its basis imme-
diately before the disposition. Other Income

Cancellation of qualified real property business The following discussion explains how to treat other types
debt. Qualified real property business debt is debt (other of business income you may receive.
than qualified farm debt) that meets all the following con-
ditions. Restricted property. Restricted property is property that
has certain restrictions that affect its value. If you receive
1. It was incurred or assumed in connection with real restricted stock or other property for services performed,
property used in a trade or business. Real property the fair market value of the property in excess of your cost
used in a trade or business does not include real is included in your income on Schedule C when the re-
property developed and held primarily for sale to cus- striction is lifted. However, you can choose to be taxed in
tomers in the ordinary course of business. the year you receive the property. For more information on
2. It was secured by such real property. including restricted property in income, see Pub. 525,
Taxable and Nontaxable Income.
3. It was incurred or assumed at either of the following
times. Gains and losses. Do not report on Schedule C a gain
a. Before January 1, 1993. or loss from the disposition of property that is neither stock
in trade nor held primarily for sale to customers. Instead,
b. After December 31, 1992, if incurred or assumed you must report these gains and losses on other forms.
to acquire, construct, or substantially improve the For more information, see chapter 3.
real property.
Promissory notes. Report promissory notes and other
4. It is debt to which you choose to apply these rules. evidences of debt issued to you in a sale or exchange of
Qualified real property business debt includes refinanc- property that is stock in trade or held primarily for sale to
ing of debt described in (3) above, but only to the extent it customers on Schedule C. In general, you report them at
does not exceed the debt being refinanced. their stated principal amount (minus any unstated interest)
when you receive them.
If you are the owner of a disregarded entity (for
TIP example, a single-member LLC), see Qualified Lost income payments. If you reduce or stop your busi-
Real Property Business Indebtedness in chap- ness activities, report on Schedule C any payment you re-
ter 1 of Pub. 4681 to see if you qualify for this exclusion. ceive for the lost income of your business from insurance
You cannot exclude more than either of the following or other sources. Report it on Schedule C even if your
amounts. business is inactive when you receive the payment.

1. The excess (if any) of:

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Damages. You must include in gross income compensa- deduction you took. Use Part IV of Form 4797 to figure the
tion you receive during the tax year as a result of any of amount to include on Schedule C. See chapter 2 of Pub.
the following injuries connected with your business. 946 to find out when you recapture the deduction.
• Patent infringement. Sale or exchange of depreciable property. If you
• Breach of contract or fiduciary duty. sell or exchange depreciable property at a gain, you may
have to treat all or part of the gain due to depreciation as
• Antitrust injury. ordinary income. You figure the income due to deprecia-
Economic injury. You may be entitled to a deduction tion recapture in Part III of Form 4797. For more informa-
against the income if it compensates you for actual eco- tion, see chapter 4 of Pub. 544.
nomic injury. Your deduction is the smaller of the following
amounts.
Items That Are Not Income
• The amount you receive or accrue for damages in the
tax year reduced by the amount you pay or incur in the In some cases, the property or money you receive is not
tax year to recover that amount. income.
• Your loss from the injury that you have not yet deduc-
Appreciation. Increases in value of your property are not
ted.
income until you realize the increases through a sale or
Punitive damages. You must also include punitive other taxable disposition.
damages in income.
Consignments. Consignments of merchandise to others
Kickbacks. If you receive any kickbacks, include them in to sell for you are not sales. The title of merchandise re-
your income on Schedule C. However, do not include mains with you, the consignor, even after the consignee
them if you properly treat them as a reduction of a related possesses the merchandise. Therefore, if you ship goods
expense item, a capital expenditure, or cost of goods on consignment, you have no profit or loss until the con-
sold. signee sells the merchandise. Merchandise you have
shipped out on consignment is included in your inventory
Recovery of items previously deducted. If you recover until it is sold.
a bad debt or any other item deducted in a previous year, Do not include merchandise you receive on consign-
include the recovery in income on Schedule C. However, ment in your inventory. Include your profit or commission
if all or part of the deduction in earlier years did not reduce on merchandise consigned to you in your income when
your tax, you can exclude the part that did not reduce your you sell the merchandise or when you receive your profit
tax. If you exclude part of the recovery from income, you or commission, depending upon the method of accounting
must include with your return a computation showing how you use.
you figured the exclusion.
Construction allowances. If you enter into a lease after
Exception for depreciation. This rule does not apply
August 5, 1997, you can exclude from income the con-
to depreciation. You recover depreciation using the rules
struction allowance you receive (in cash or as a rent re-
explained next.
duction) from your landlord if you receive it under both the
Recapture of depreciation. In the following situations, following conditions.
you have to recapture the depreciation deduction. This • Under a short-term lease of retail space.
means you include in income part or all of the depreciation
you deducted in previous years. • For the purpose of constructing or improving qualified
long-term real property for use in your business at that
Listed property. If your business use of listed prop- retail space.
erty (explained in chapter 8 under Depreciation) falls to
50% or less in a tax year after the tax year you placed the Amount you can exclude. You can exclude the con-
property in service, you may have to recapture part of the struction allowance to the extent it does not exceed the
depreciation deduction. You do this by including in income amount you spent for construction or improvements.
on Schedule C part of the depreciation you deducted in Short-term lease. A short-term lease is a lease (or
previous years. Use Part IV of Form 4797 to figure the other agreement for occupancy or use) of retail space for
amount to include on Schedule C. For more information, 15 years or less. The following rules apply in determining
see What Is the Business-Use Requirement? in chapter 5 whether the lease is for 15 years or less.
of Pub. 946. That chapter explains how to determine
whether property is used more than 50% in your business. • Take into account options to renew when figuring
whether the lease is for 15 years or less. But do not
Section 179 property. If you take a section 179 de- take into account any option to renew at fair market
duction (explained in chapter 8 under Depreciation) for an value determined at the time of renewal.
asset and before the end of the asset's recovery period
• Two or more successive leases that are part of the
the percentage of business use drops to 50% or less, you
same transaction (or a series of related transactions)
must recapture part of the section 179 deduction. You do
for the same or substantially similar retail space are
this by including in income on Schedule C part of the
treated as one lease.

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Retail space. Retail space is real property leased, oc- b. Delivering or distributing newspapers or shopping
cupied, or otherwise used by you as a tenant in your busi- news (including any services directly related to
ness of selling tangible personal property or services to that trade or business).
the general public.
2. Substantially all your pay (whether paid in cash or not)
Qualified long-term real property. Qualified for services described above is directly related to
long-term real property is nonresidential real property that sales or other output (including performance of serv-
is part of, or otherwise present at, your retail space and ices) rather than to the number of hours worked.
that reverts to the landlord when the lease ends.
3. Your services are performed under a written contract
Exchange of like-kind property. Generally, if you ex- between you and the person for whom you perform
change real property used for business or held as an in- the services, and the contract provides that you will
vestment solely for other business or investment real not be treated as an employee for federal tax purpo-
property of a like kind, no gain or loss is recognized. This ses.
means that the gain is not taxable and the loss is not de-
Executor or administrator. If you administer a de-
ductible. For more information, see Form 8824.
ceased person's estate, your fees are reported on Sched-
Leasehold improvements. If a tenant erects buildings ule C if you are one of the following.
or makes improvements to your property, the increase in 1. A professional fiduciary.
the value of the property due to the improvements is not
income to you. However, if the facts indicate that the im- 2. A nonprofessional fiduciary (personal representative)
provements are a payment of rent to you, then the in- and both of the following apply.
crease in value would be income. a. The estate includes an active trade or business in
which you actively participate.
Loans. Money borrowed through a bona fide loan is not
income. b. Your fees are related to the operation of that trade
or business.
Sales tax. State and local sales taxes imposed on the
buyer, which you were required to collect and pay over to 3. A nonprofessional fiduciary of a single estate that re-
state or local governments, are not income. quires extensive managerial activities on your part for
a long period of time, provided these activities are
enough to be considered a trade or business.
Guidelines for Selected If the fees do not meet the above requirements, report
them on line 8z of Schedule 1 (Form 1040).
Occupations
This section provides information to determine whether Fishing crew member. If you are a member of a crew
your earnings should be reported on Schedule C (Form that catches fish or other aquatic life, your earnings are re-
1040). ported on Schedule C if you meet all the requirements
shown in chapter 10 under Fishing crew member.
Direct seller. You must report all income you receive as
a direct seller on Schedule C. This includes any of the fol- Insurance agent, former. Termination payments you re-
lowing. ceive as a former self-employed insurance agent from an
insurance company because of services you performed
• Income from sales—Payments you receive from cus- for that company are not reported on Schedule C if all the
tomers for products they buy from you. following conditions are met.
• Commissions, bonuses, or percentages you receive • You received payments after your agreement to per-
for sales and the sales of others who work under you. form services for the company ended.
• Prizes, awards, and gifts you receive from your selling • You did not perform any services for the company af-
business. ter your service agreement ended and before the end
You must report this income regardless of whether it is re- of the year in which you received the payment.
ported to you on an information return. • You entered into a covenant not to compete against
You are a direct seller if you meet all the following con- the company for at least a 1-year period beginning on
ditions. the date your service agreement ended.
1. You are engaged in one of the following trades or • The amount of the payments depended primarily on
businesses. policies sold by you or credited to your account during
a. Selling or soliciting the sale of consumer products the last year of your service agreement or the extent to
either in a home or other place that is not a perma- which those policies remain in force for some period
nent retail establishment, or to any buyer on a after your service agreement ended, or both.
buy-sell basis or a deposit-commission basis for • The amount of the payment did not depend to any ex-
resale in a home or other place of business that is tent on length of service or overall earnings from
not a permanent retail establishment. services performed for the company (regardless of

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whether eligibility for the payments depended on Public officials of state or local governments report their
length of service). fees from the public on Schedule C if they are paid solely
on a fee basis and if their services are eligible for, but not
Insurance agent, retired. Income paid by an insurance covered by, social security under a federal-state agree-
company to a retired self-employed insurance agent ment.
based on a percentage of commissions received before
retirement is reported on Schedule C. Also, renewal com- Real estate agent or direct seller. If you are a licensed
missions and deferred commissions for sales made be- real estate agent or a direct seller, your earnings are re-
fore retirement are generally reported on Schedule C. ported on Schedule C if both the following apply.
However, renewal commissions paid to the survivor of
• Substantially all your pay for services as a real estate
an insurance agent are not reported on Schedule C.
agent or direct seller directly relates to your sales or
Newspaper carrier or distributor. You are a direct other output rather than to the number of hours you
seller and your earnings are reported on Schedule C if all work.
the following conditions apply. • You perform the services under a written contract that
• You are in the business of delivering or distributing says you will not be treated as an employee for federal
newspapers or shopping news (including directly rela- tax purposes.
ted services such as soliciting customers and collect-
Dealer in section 1256 contracts. If you are a dealer in
ing receipts).
options or commodities, your gains and losses from deal-
• Substantially all your pay for these services directly re- ing or trading in section 1256 contracts (regulated futures
lates to your sales or other output rather than to the contracts, foreign currency contracts, nonequity options,
number of hours you work. dealer equity options, and dealer securities futures con-
tracts) or property related to those contracts (such as
• You perform the services under a written contract that
stock used to hedge options) are reported on Schedule C.
says you will not be treated as an employee for federal
For more information, see sections 1256 and 1402(i).
tax purposes.
This rule applies whether or not you hire others to help Securities or commodities trader. You are a trader in
you make deliveries. It also applies whether you buy the securities or commodities if you are engaged in the busi-
papers from the publisher or are paid based on the num- ness of buying and selling securities or commodities for
ber of papers you deliver. your own account. As a trader in securities or commodi-
ties, your gain or loss from the disposition of securities or
Newspaper or magazine vendor. If you are age 18 or commodities is not reported on Schedule C. For more in-
older and you sell newspapers or magazines, your earn- formation about traders in securities or commodities, see
ings are reported on Schedule C if all the following condi- Pub. 550, Investment Income and Expenses.
tions apply.
• You sell newspapers or magazines to ultimate con-
sumers. Accounting for Your Income
• You sell them at a fixed price. Accounting for your income for income tax purposes dif-
• Your earnings are based on the difference between fers at times from accounting for financial purposes. This
the sales price and your cost of goods sold. section discusses some of the more common differences
that may affect business transactions.
This rule applies whether or not you are guaranteed a
minimum amount of earnings. It also applies whether or Figure your business income on the basis of a tax year
not you receive credit for unsold newspapers or maga- and according to your regular method of accounting (see
zines you return to your supplier. chapter 2). If the sale of a product is an income-producing
factor in your business, you usually have to use invento-
Notary public. Fees you receive for services you per- ries to clearly show your income. Dealers in real estate
form as a notary public are reported on Schedule C. are not allowed to use inventories. For more information
These payments are not subject to SE tax (see the In- on inventories, see chapter 2.
structions for Schedule SE (Form 1040)).
Income paid to a third party. All income you earn is
Public official. Public officials generally do not report taxable to you. You cannot avoid tax by having the income
what they earn for serving in public office on Schedule C. paid to a third party.
This rule applies to payments received by an elected tax
collector from state funds on the basis of a fixed percent- Example. You rent out your property and the rental
age of the taxes collected. Public office includes any elec- agreement directs the lessee to pay the rent to your son.
tive or appointive office of the United States or its posses- The amount paid to your son is gross income to you.
sions, the District of Columbia, a state or its political
subdivisions, or a wholly owned instrumentality of any of Cash discounts. These are amounts the seller permits
these. you to deduct from the invoice price for prompt payment.

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For income tax purposes, you can use either of the follow-
ing two methods to account for cash discounts.
1. Deduct the cash discount from purchases (see 6.
Line 36, Purchases Less Cost of Items Withdrawn for
Personal Use in chapter 6).
How To Figure Cost of
2. Credit the cash discount to a discount income ac-
count.
Goods Sold
You must use the chosen method every year for all your
purchase discounts.
If you use the second method, the credit balance in the Introduction
account at the end of your tax year is business income. If you make or buy goods to sell, you can deduct the cost
Under this method, you do not reduce the cost of goods of goods sold from your gross receipts on Schedule C.
sold by the cash discounts you received. When valuing However, to determine these costs, you must value your
your closing inventory, you cannot reduce the invoice inventory at the beginning and end of each tax year.
price of merchandise on hand at the close of the tax year This chapter applies to you if you are a manufacturer,
by the average or estimated discounts received on the wholesaler, or retailer or if you are engaged in any busi-
merchandise. ness that makes, buys, or sells goods to produce income.
This chapter does not apply to a personal service busi-
Trade discounts. These are reductions from list or cata-
ness, such as the business of a doctor, lawyer, carpenter,
log prices and are usually not written into the invoice or
or painter. However, if you work in a personal service
charged to the customer. Do not enter these discounts on
business and also sell or charge for the materials and sup-
your books of account. Instead, use only the net amount
plies normally used in your business, this chapter applies
as the cost of the merchandise purchased. For more infor-
to you.
mation, see Trade discounts in chapter 6.
There are exceptions for small business taxpay-
Payment placed in escrow. If the buyer of your property ! ers that may change how you figure cost of goods
places part or all of the purchase price in escrow, you do CAUTION sold for your business. For more information, see
not include any part of it in gross sales until you actually or chapter 2.
constructively receive it. However, upon completion of the
terms of the contract and the escrow agreement, you will
have taxable income, even if you do not accept the money
until the next year. Figuring Cost of Goods Sold
on Schedule C, Lines 35
Sales returns and allowances. Credits you allow cus-
tomers for returned merchandise and any other allowan- Through 42
ces you make on sales are deductions from gross sales in
figuring net sales. Figure your cost of goods sold by filling out lines 35
through 42 of Schedule C. These lines are reproduced be-
Advance payments. Special rules dealing with an ac- low and are explained in the discussion that follows.
crual method of accounting for payments received in ad-
vance are discussed in chapter 2 under Accrual Method. 35 Inventory at beginning of year. If different from last
year's closing inventory, attach explanation. . . . . . .
Insurance proceeds. If you receive insurance or another 36 Purchases less cost of items withdrawn for personal
type of reimbursement for a casualty or theft loss, you use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
must subtract it from the loss when you figure your deduc- 37 Cost of labor. Do not include any amounts paid to
tion. You cannot deduct the reimbursed part of a casualty yourself. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
or theft loss. 38 Materials and supplies. . . . . . . . . . . . . . . . . . . .
For information on casualty or theft losses, see Pub.
39 Other costs. . . . . . . . . . . . . . . . . . . . . . . . . . .
547.
40 Add lines 35 through 39 . . . . . . . . . . . . . . . . . . .
41 Inventory at end of year . . . . . . . . . . . . . . . . . . .
42 Cost of goods sold. Subtract line 41 from line 40.
Enter the result here and on line 4. . . . . . . . . . . . .

Line 35 Inventory at Beginning of
Year

If you are a merchant, beginning inventory is the cost of
merchandise on hand at the beginning of the year that you

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will sell to customers. If you are a manufacturer or pro- are called trade discounts. You must use the prices you
ducer, it includes the total cost of raw materials, work in pay (not the stated prices) in figuring your cost of purcha-
process, finished goods, and materials and supplies used ses. Do not show the discount amount separately as an
in manufacturing the goods (see Inventories in chapter 2). item in gross income.
An automobile dealer must record the cost of a car in
Opening inventory will usually be identical to the clos- inventory reduced by any manufacturer's rebate that rep-
ing inventory of the year before. You must explain any dif- resents a trade discount.
ference in a schedule attached to your return.
Cash discounts. Cash discounts are amounts your sup-
Donation of inventory. If you contribute inventory (prop- pliers let you deduct from your purchase invoices for
erty that you sell in the course of your business), the prompt payments. There are two methods of accounting
amount you can claim as a contribution deduction is the for cash discounts. You can either credit them to a sepa-
smaller of its fair market value on the day you contributed rate discount account or deduct them from total purcha-
it or its basis. The basis of donated inventory is any cost ses for the year. Whichever method you use, you must be
incurred for the inventory in an earlier year that you would consistent. If you want to change your method of figuring
otherwise include in your opening inventory for the year of inventory cost, you must file Form 3115. For more infor-
the contribution. You must remove the amount of your mation, see Change in Accounting Method in chapter 2.
contribution deduction from your opening inventory. It is If you credit cash discounts to a separate account, you
not part of the cost of goods sold. must include this credit balance in your business income
If the cost of donated inventory is not included in your at the end of the tax year. If you use this method, do not
opening inventory, the inventory's basis is zero and you reduce your cost of goods sold by the cash discounts.
cannot claim a charitable contribution deduction. Treat the
inventory's cost as you would ordinarily treat it under your Purchase returns and allowances. You must deduct all
method of accounting. For example, include the purchase returns and allowances from your total purchases during
price of inventory bought and donated in the same year in the year.
the cost of goods sold for that year.
A special rule may apply to certain donations of food in- Merchandise withdrawn from sale. If you withdraw
ventory. See Pub. 526, Charitable Contributions. merchandise for your personal or family use, you must ex-
clude this cost from the total amount of merchandise you
Example 1. You are a calendar year taxpayer who bought for sale. Do this by crediting the purchases or
uses an accrual method of accounting. In 2022, you con- sales account with the cost of merchandise you withdraw
tributed property from inventory to a church. It had a fair for personal use. You must also charge the amount to
market value of $600. The closing inventory at the end of your drawing account.
2021 properly included $400 of costs due to the acquisi- A drawing account is a separate account you should
tion of the property, and in 2021, you properly deducted keep to record the business income you withdraw to pay
$50 of administrative and other expenses attributable to for personal and family expenses. As stated above, you
the property as business expenses. The charitable contri- also use it to record withdrawals of merchandise for per-
bution allowed for 2022 is $400 ($600 − $200). The $200 sonal or family use. This account is also known as a with-
is the amount that would be ordinary income if you had drawals account or personal account.
sold the contributed inventory at fair market value on the
date of the gift. The cost of goods sold you use in deter- Line 37 Cost of Labor
mining gross income for 2022 must not include the $400.
You remove that amount from opening inventory for 2022. Labor costs are usually an element of cost of goods sold
only in a manufacturing or mining business. Small mer-
Example 2. If, in Example 1, you acquired the contrib- chandisers (wholesalers, retailers, etc.) usually do not
uted property in 2022 at a cost of $400, you would include have labor costs that can properly be charged to cost of
the $400 cost of the property in figuring the cost of goods goods sold. In a manufacturing business, labor costs
sold for 2022 and deduct the $50 of administrative and properly allocable to the cost of goods sold include both
other expenses attributable to the property for that year. the direct and indirect labor used in fabricating the raw
You would not be allowed any charitable contribution de- material into a finished, saleable product.
duction for the contributed property.
Direct labor. Direct labor costs are the wages you pay to
Line 36 Purchases Less Cost of Items those employees who spend all their time working directly
on the product being manufactured. They also include a
Withdrawn for Personal Use
part of the wages you pay to employees who work directly
on the product part time if you can determine that part of
If you are a merchant, use the cost of all merchandise you
their wages.
bought for sale. If you are a manufacturer or producer, this
includes the cost of all raw materials or parts purchased Indirect labor. Indirect labor costs are the wages you
for manufacture into a finished product. pay to employees who perform a general factory function
that does not have any immediate or direct connection
Trade discounts. The differences between the stated
prices of articles and the actual prices you pay for them

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with making the saleable product, but that is a necessary Line 42 Cost of Goods Sold
part of the manufacturing process.
When you subtract your closing inventory (inventory at the
Other labor. Other labor costs not properly chargeable end of the year) from the cost of goods available for sale,
to the cost of goods sold can be deducted as selling or the remainder is your cost of goods sold during the tax
administrative expenses. Generally, the only kinds of la- year.
bor costs properly chargeable to your cost of goods sold
are the direct or indirect labor costs and certain other
costs treated as overhead expenses properly charged to
the manufacturing process, as discussed later under
Line 39, Other Costs.
7.
Line 38 Materials and Supplies

Materials and supplies, such as hardware and chemicals, Figuring Gross Profit
used in manufacturing goods are charged to cost of
goods sold. Those that are not used in the manufacturing
process are treated as deferred charges. You deduct Introduction
them as a business expense when you use them. Busi-
After you have figured the gross receipts from your busi-
ness expenses are discussed in chapter 8.
ness (chapter 5) and the cost of goods sold (chapter 6),
you are ready to figure your gross profit. You must deter-
Line 39 Other Costs mine gross profit before you can deduct any business ex-
penses. These expenses are discussed in chapter 8.
Examples of other costs incurred in a manufacturing or
mining process that you charge to your cost of goods sold Businesses that sell products. Figure your gross profit
are as follows. by first figuring your net receipts. Figure net receipts
(line 3) on Schedule C by subtracting any returns and al-
Containers. Containers and packages that are an inte- lowances (line 2) from gross receipts (line 1). Returns and
gral part of the product manufactured are a part of your allowances include cash or credit refunds you make to
cost of goods sold. If they are not an integral part of the customers, rebates, and other allowances off the actual
manufactured product, their costs are shipping or selling sales price.
expenses. Next, subtract the cost of goods sold (line 4) from net
Freight-in. Freight-in, express-in, and cartage-in on raw receipts (line 3). The result is the gross profit from your
materials, supplies you use in production, and merchan- business.

dise you purchase for sale are all part of cost of goods Businesses that sell services. You do not have to fig-
sold. ure the cost of goods sold if the sale of merchandise is not
Overhead expenses. Overhead expenses include ex- an income-producing factor for your business. Your gross
penses such as rent, heat, light, power, insurance, depre- profit is the same as your net receipts (gross receipts mi-
ciation, taxes, maintenance, labor, and supervision. The nus any refunds, rebates, or other allowances). Most pro-
overhead expenses you have as direct and necessary ex- fessions and businesses that sell services rather than
penses of the manufacturing operation are included in products can figure gross profit directly from net receipts
your cost of goods sold. in this way.

Illustration. This illustration of the gross profit section of
Line 40 Add Lines 35 Through 39 the income statement of a retail business shows how
gross profit is figured.
The total of lines 35 through 39 equals the cost of the
goods available for sale during the year. Income Statement Year Ended December
31, 2022
Line 41 Inventory at End of Year
Gross receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000
Subtract the value of your closing inventory (including, as Minus: Returns and allowances. . . . . . . . . . . . . . . . . 14,940
appropriate, the allocable parts of the cost of raw materi- Net receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $385,060
als and supplies, direct labor, and overhead expenses) Minus: Cost of goods sold. . . . . . . . . . . . . . . . . . . . 288,140
from line 40. Inventory at the end of the year is also known Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $96,920
as closing or ending inventory. Your ending inventory will
usually become the beginning inventory of your next tax The cost of goods sold for this business is figured as
year. follows.

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Inventory at beginning of year . . . . . . . . . . . . . . . . . . $37,845 profit by net receipts. The resulting percentage measures
Plus: Purchases. . . . . . . . . . . . . . . . . . . $285,900 the average spread between the merchandise cost of
Minus: Items withdrawn for personal use. . . 2,650 283,250 goods sold and the selling price.
Goods available for sale. . . . . . . . . . . . . . . . . . . . . $321,095
Minus: Inventory at end of year. . . . . . . . . . . . . . . . . 32,955 Next, compare this percentage to your markup policy.
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . $288,140 Little or no difference between these two percentages
shows that your gross profit figure is accurate. A large dif-
ference between these percentages may show that you
did not accurately figure sales, purchases, inventory, or
Items To Check other items of cost. You should determine the reason for
the difference.
Consider the following items before figuring your gross
profit. Example. Joe Able operates a retail business. On the
average, he marks up his merchandise so that he will real-
Gross receipts. At the end of each business day, make ize a gross profit of 33 / % on its sales. The net receipts 1 3
sure your records balance with your actual cash and (gross receipts minus returns and allowances) shown on
credit receipts for the day. You may find it helpful to use his income statement are $300,000. His cost of goods
cash registers to keep track of receipts. You should also sold is $200,000. This results in a gross profit of $100,000
use a proper invoicing system and keep a separate bank ($300,000 − $200,000). To test the accuracy of this year's
account for your business. results, Joe divides gross profit ($100,000) by net receipts
($300,000). The resulting 33 / % confirms his markup per-1 3
Sales tax collected. Check to make sure your records 1 3
centage of 33 / %.
show the correct sales tax collected.
If you collect state and local sales taxes imposed on
you as the seller of goods or services from the buyer, you
must include the amount collected in gross receipts. Additions to Gross Profit
If you are required to collect state and local taxes im-
If your business has income from a source other than its
posed on the buyer and turn them over to state or local
regular business operations, enter the income on line 6 of
governments, you generally do not include these amounts
Schedule C and add it to gross profit. The result is gross
in income.
business income. Some examples include income from
Inventory at beginning of year. Compare this figure an interest-bearing checking account, income from scrap
with last year's ending inventory. The two amounts should sales, income from certain fuel tax credits and refunds,
usually be the same. and amounts recovered from bad debts.

Purchases. If you take any inventory items for your per-
sonal use (use them yourself, provide them to your family,
or give them as personal gifts, etc.), be sure to remove
them from the cost of goods sold. For details on how to
adjust cost of goods sold, see Merchandise withdrawn 8.
from sale in chapter 6.

Inventory at end of year. Check to make sure your pro- Business Expenses
cedures for taking inventory are adequate. These proce-
dures should ensure all items have been included in in-
ventory and proper pricing techniques have been used. Introduction
Use inventory forms and adding machine tapes as the
You can deduct the costs of operating your business.
only evidence for your inventory. Inventory forms are
These costs are known as business expenses. These are
available at office supply stores. These forms have col-
costs you do not have to capitalize or include in the cost of
umns for recording the description, quantity, unit price,
goods sold but can deduct in the current year.
and value of each inventory item. Each page has space to
To be deductible, a business expense must be both or-
record who made the physical count, who priced the
dinary and necessary. An ordinary expense is one that is
items, who made the extensions, and who proofread the
common and accepted in your field of business. A neces-
calculations. These forms will help you confirm that the to-
sary expense is one that is helpful and appropriate for
tal inventory is accurate. They will also provide you with a
your business. An expense does not have to be indispen-
permanent record to support its validity.
sable to be considered necessary.
Inventories are discussed in chapter 2.
For more information about the general rules for de-
ducting business expenses, see chapter 1 of Pub. 535.
Testing Gross Profit Accuracy If you have an expense that is partly for business
and partly personal, separate the personal part
If you are in a retail or wholesale business, you can check CAUTION! from the business part. The personal part is not
the accuracy of your gross profit figure. First, divide gross deductible.

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Useful Items Nonbusiness bad debts. All other bad debts are non-
You may want to see: business bad debts and are deductible as short-term capi-
tal losses on Form 8949 and Schedule D (Form 1040). For
Publication more information on nonbusiness bad debts, see Pub.
550.
463 463 Travel, Gift, and Car Expenses
535 535 Business Expenses
Car and Truck Expenses
946 946 How To Depreciate Property
If you use your car or truck in your business, you may be
See chapter 12 for information about getting publications able to deduct the costs of operating and maintaining your
and forms. vehicle. You may also be able to deduct other costs of lo-
cal transportation and traveling away from home overnight
on business.
Bad Debts
Local transportation expenses. Local transportation
If someone owes you money you cannot collect, you have expenses include the ordinary and necessary costs of all
a bad debt. There are two kinds of bad debts—business the following.
bad debts and nonbusiness bad debts. Getting from one workplace to another in the course of
•
A business bad debt is generally one that comes from your business or profession when you are traveling
operating your trade or business. You may be able to de- within the city or general area that is your tax home.
duct business bad debts as an expense on your business Tax home is defined later.
tax return. • Visiting clients or customers.
Business bad debt. A business bad debt is a loss from • Going to a business meeting away from your regular
the worthlessness of a debt that was either of the follow- workplace.
ing. • Getting from your home to a temporary workplace
1. Created or acquired in your business. when you have one or more regular places of work.
These temporary workplaces can be either within the
2. Closely related to your business when it became area of your tax home or outside that area.
partly or totally worthless.
Local business transportation does not include expenses
A debt is closely related to your business if your primary you have while traveling away from home overnight.
motive for incurring the debt is a business reason. Those expenses are deductible as travel expenses and
Business bad debts are mainly the result of credit sales are discussed later under Travel and Meals. However, if
to customers. They can also be the result of loans to sup- you use your car while traveling away from home over-
pliers, clients, employees, or distributors. Goods and serv- night, use the rules in this section to figure your car ex-
ices that customers have not paid for are shown in your pense deduction.
books as either accounts receivable or notes receivable. If Generally, your tax home is your regular place of busi-
you are unable to collect any part of these accounts or ness, regardless of where you maintain your family home.
notes receivable, the uncollectible part is a business bad It includes the entire city or general area in which your
debt. business or work is located.

You can take a bad debt deduction for these ac- Example. You operate a printing business out of ren-
! counts and notes receivable only if the amount ted office space. You use your van to deliver completed
CAUTION you were owed was included in your gross in-
jobs to your customers. You can deduct the cost of
come either for the year the deduction is claimed or for a round-trip transportation between your customers and
prior year. your print shop.
Accrual method. If you use an accrual method of ac- You cannot deduct the costs of driving your car or
counting, you normally report income as you earn it. You ! truck between your home and your main or regu-
can take a bad debt deduction for an uncollectible receiv- CAUTION lar workplace. These costs are personal commut-
able if you have included the uncollectible amount in in- ing expenses.
come.
Office in the home. Your workplace can be your
Cash method. If you use the cash method of account- home if you have an office in your home that qualifies as
ing, you normally report income when you receive pay- your principal place of business. For more information,
ment. You cannot take a bad debt deduction for amounts see Business Use of Your Home, later.
owed to you that you have not received and cannot collect
if you never included those amounts in income. Example. You are a graphic designer. You operate
your business out of your home. Your home qualifies as
More information. For more information about business your principal place of business. You occasionally have to
bad debts, see chapter 10 of Pub. 535.

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drive to your clients to deliver your completed work. You If you qualify to use both methods, figure your de-
can deduct the cost of the round-trip transportation be- TIP duction both ways to see which gives you a larger
tween your home and your clients. deduction.
Actual car expenses include the costs of the following
Methods for Deducting Car and Truck items.
Expenses
Depreciation Lease payments Registration
For local transportation or overnight travel by car or truck, Garage rent Licenses Repairs
you can generally use one of the following methods to fig- Gas Oil Tires
ure your expenses. Insurance Parking fees Tolls
• Standard mileage rate. If you use your vehicle for both business and personal
purposes, you must divide your expenses between busi-
• Actual expenses.
ness and personal use. You can divide your expenses
Standard mileage rate. You may be able to use the based on the miles driven for each purpose.
standard mileage rate to figure the deductible costs of op-
Example. You are the sole proprietor of a flower shop.
erating your car, van, pickup, or panel truck for business
You drove your van 20,000 miles during the year. 16,000
purposes. The business standard mileage rate from Janu-
miles were for delivering flowers to customers and 4,000
ary 1, 2022, to June 30, 2022, is 58.5 cents per mile. The
miles were for personal use (including commuting miles).
business standard mileage rate from July 1, 2022, to De-
You can claim only 80% (16,000 ÷ 20,000) of the cost of
cember 31, 2022, is 62.5 cents per mile.
operating your van as a business expense.
If you choose to use the standard mileage rate for
More information. For more information about the rules
CAUTION for that year except for business-related parking
! a year, you cannot deduct your actual expenses for claiming car and truck expenses, see Pub. 463.
fees and tolls.
Reimbursing Your Employees for
Choosing the standard mileage rate. If you want to
Expenses
use the standard mileage rate for a car or truck you own,
you must choose to use it in the first year the car is availa- You can generally deduct the amount you reimburse your
ble for use in your business. In later years, you can employees for car and truck expenses. The reimburse-
choose to use either the standard mileage rate or actual ment you deduct and the manner in which you deduct it
expenses. depend in part on whether you reimburse the expenses
If you choose to use the standard mileage rate for a car under an accountable plan or a nonaccountable plan. For
you lease, you must use it for the entire lease period (in- details, see chapter 11 of Pub. 535. That chapter explains
cluding renewals). accountable and nonaccountable plans and tells you
Standard mileage rate not allowed. You cannot use whether to report the reimbursement on your employee's
the standard mileage rate if you: Form W-2.

1. Operate five or more cars at the same time;
2. Claimed a depreciation deduction using any method Depreciation
other than straight line, for example, ACRS or
MACRS; If property you acquire to use in your business is expected
to last more than 1 year, you generally cannot deduct the
3. Claimed a section 179 deduction on the car; entire cost as a business expense in the year you acquire
4. Claimed the special depreciation allowance on the it. You must spread the cost over more than 1 tax year
car; and deduct part of it each year on Schedule C. This
method of deducting the cost of business property is
5. Claimed actual car expenses for a car you leased; or called depreciation.
6. Are a rural mail carrier who received a qualified reim- The following is a brief overview. You will find more in-
bursement. formation about depreciation in Pub. 946.

Parking fees and tolls. In addition to using the stand- What property can be depreciated? You can depreci-
ard mileage rate, you can deduct any business-related ate property if it meets all the following requirements.
parking fees and tolls. (Parking fees you pay to park your
car at your place of work are nondeductible commuting • It must be property you own.
expenses.) • It must be used in business or held to produce in-
come. You can never depreciate inventory (explained
Actual expenses. If you do not choose to use the stand-
in chapter 2) because it is not held for use in your
ard mileage rate, you may be able to deduct your actual
business.
car or truck expenses.

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• It must have a useful life that extends substantially be- Listed property. You must follow special rules and re-
yond the year it is placed in service. cordkeeping requirements when depreciating listed prop-
erty. Listed property includes any of the following.
• It must have a determinable useful life, which means
that it must be something that wears out, decays, gets • Most passenger automobiles.
used up, becomes obsolete, or loses its value from
• Most other property used for transportation.
natural causes. You can never depreciate the cost of
land because land does not wear out, become obso- • Any property of a type generally used for entertain-
lete, or get used up. ment, recreation, or amusement.
• It must not be excepted property. This includes prop- For more information about listed property, see Pub.
erty placed in service and disposed of in the same 946.
year.
Form 4562. Use Form 4562, Depreciation and Amortiza-
Repairs. In general, you do not depreciate the costs of tion, if you are claiming any of the following.
repairs or maintenance if they do not improve your prop- • Depreciation on property placed in service during the
erty. Instead, you deduct these amounts on line 21 of current tax year.
Schedule C. Improvements are amounts paid for better-
ments to your property, restorations of your property, or • A section 179 deduction.
work that adapts your property to a new or different use. • Depreciation on any listed property (regardless of
when it was placed in service).
Election to capitalize repair and maintenance
costs that do not improve your property. You can
make an election to treat certain repairs or replacements
in your trade or business as improvements subject to de- Employees' Pay
preciation. This election is available if you treat these
You can generally deduct on Schedule C the pay you give
amounts as capital expenditures on your books and re-
your employees for the services they perform for your
cords regularly used in computing your income and ex-
business. The pay may be in cash, property, or services.
penses. The election to capitalize repair and maintenance
costs is discussed in chapter 1 of Pub. 535. To be deductible, your employees' pay must be an ordi-
nary and necessary expense and you must pay or incur it
Depreciation method. The method for depreciating in the tax year. In addition, the pay must meet both the fol-
most business and investment property placed in service lowing tests.
after 1986 is called the Modified Accelerated Cost Recov-
ery System (MACRS). MACRS is discussed in detail in • The pay must be reasonable.
Pub. 946. • The pay must be for services performed.
Section 179 deduction. You can elect to deduct a limi- Chapter 2 of Pub. 535 explains and defines these require-
ted amount of the cost of certain depreciable property in ments.
the year you place the property in service. This deduction You cannot deduct your own salary or any personal
is known as the section 179 deduction. The maximum withdrawals you make from your business. As a sole pro-
amount you can elect to deduct during 2022 is generally prietor, you are not an employee of the business.
$1,080,000 (higher limits apply to certain property).
This limit is generally reduced by the amount by which Kinds of pay. Some of the ways you may provide pay to
the cost of the property placed in service during the tax your employees are listed below. For an explanation of
year exceeds $2,700,000. The total amount of deprecia- each of these items, see chapter 2 of Pub. 535.
tion (including the section 179 deduction) you can take for
• Awards.
a passenger automobile you use in your business and first
place in service in 2022 is $11,200 ($19,200 if you take • Bonuses.
the special depreciation allowance for qualified passenger • Education expenses.
automobiles placed in service in 2022). Special rules ap-
ply to trucks and vans. For more information, see Pub. • Fringe benefits (discussed later).
946. It explains what property qualifies for the deduction, • Loans or advances you do not expect the employee to
what limits apply to the deduction, and when and how to repay if they are for personal services actually per-
recapture the deduction. formed.
Your section 179 election for the cost of any sport • Property you transfer to an employee as payment for
! utility vehicle (SUV) and certain other vehicles is services.
CAUTION limited to $27,000. For more information, see the
Instructions for Form 4562 or Pub. 946. • Reimbursements for employee business expenses.
• Sick pay.
• Vacation pay.

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Fringe benefits. A fringe benefit is a form of pay for 8. Overhead insurance that pays for business overhead
the performance of services. The following are examples expenses you have during long periods of disability
of fringe benefits. caused by your injury or sickness.
• Benefits under qualified employee benefit programs. 9. Car and other vehicle insurance that covers vehicles
• Meals and lodging. used in your business for liability, damages, and other
losses. If you operate a vehicle partly for personal
• The use of a car. use, deduct only the part of the insurance premium
• Flights on airplanes. that applies to the business use of the vehicle. If you
use the standard mileage rate to figure your car ex-
• Discounts on property or services. penses, you cannot deduct any car insurance premi-
Employee benefit programs include the following. ums.
• Accident and health plans. 10. Life insurance covering your employees if you are not
• Adoption assistance. directly or indirectly the beneficiary under the con-
tract.
• Cafeteria plans.
11. Business interruption insurance that pays for lost prof-
• Dependent care assistance. its if your business is shut down due to a fire or other
• Educational assistance. cause.

• Group-term life insurance coverage. Nondeductible premiums. You cannot deduct premi-
• Welfare benefit funds. ums on the following kinds of insurance.
You can generally deduct the cost of fringe benefits you 1. Self-insurance reserve funds. You cannot deduct
provide on your Schedule C in whatever category the cost amounts credited to a reserve set up for self-insur-
falls. For example, if you allow an employee to use a car ance. This applies even if you cannot get business in-
or other property you lease, deduct the cost of the lease surance coverage for certain business risks. How-
as a rent or lease expense. If you own the property, in- ever, your actual losses may be deductible. For more
clude your deduction for its cost or other basis as a sec- information, see Pub. 547.
tion 179 deduction or a depreciation deduction.
2. Loss of earnings. You cannot deduct premiums for a
You may be able to exclude all or part of the policy that pays for your lost earnings due to sickness
TIP fringe benefits you provide from your employees' or disability. However, see item (8) in the previous list.
wages. For more information about fringe benefits
3. Certain life insurance and annuities.
and the exclusion of benefits, see Pub. 15-B.
a. For contracts issued before June 9, 1997, you
cannot deduct the premiums on a life insurance
policy covering you, an employee, or any person
Insurance with a financial interest in your business if you are
You can generally deduct premiums you pay for the fol- directly or indirectly a beneficiary of the policy.
lowing kinds of insurance related to your business. You are included among possible beneficiaries of
the policy if the policy owner is obligated to repay
1. Fire, theft, flood, or similar insurance. a loan from you using the proceeds of the policy.
2. Credit insurance that covers losses from business A person has a financial interest in your business
bad debts. if the person is an owner or part owner of the busi-
ness or has lent money to the business.
3. Group hospitalization and medical insurance for em-
ployees, including long-term care insurance. b. For contracts issued after June 8, 1997, you gen-
erally cannot deduct the premiums on any life in-
4. Liability insurance. surance policy, endowment contract, or annuity
5. Malpractice insurance that covers your personal liabil- contract if you are directly or indirectly a benefi-
ity for professional negligence resulting in injury or ciary. The disallowance applies without regard to
damage to patients or clients. whom the policy covers.
6. Workers' compensation insurance set by state law 4. Insurance to secure a loan. If you take out a policy on
that covers any claims for bodily injuries or job-related your life or on the life of another person with a finan-
diseases suffered by employees in your business, re- cial interest in your business to get or protect a busi-
gardless of fault. ness loan, you cannot deduct the premiums as a busi-
ness expense. Nor can you deduct the premiums as
7. Contributions to a state unemployment insurance interest on business loans or as an expense of financ-
fund are deductible as taxes if they are considered ing loans. In the event of death, the proceeds of the
taxes under state law. policy are not taxed as income even if they are used
to liquidate the debt.

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Self-employed health insurance deduction. You may You cannot deduct on Schedule C the interest you paid
be able to deduct the amount you paid for medical and on personal loans. If a loan is part business and part per-
dental insurance and qualified long-term care insurance sonal, you must divide the interest between the personal
for you and your family. part and the business part.

How to figure the deduction. Generally, you can use Example. In 2022, you paid $600 interest on a car
the worksheet in the Instructions for Form 1040 to figure loan. During 2022, you used the car 60% for business and
your deduction. However, if any of the following apply, you 40% for personal purposes. You are claiming actual ex-
must use the worksheet in chapter 6 of Pub. 535. penses on the car. You can only deduct $360 (60% (0.60)
• You have more than one source of income subject to × $600) for 2022 on Schedule C. The remaining interest of
SE tax. $240 is a nondeductible personal expense.

• You file Form 2555 (relating to foreign earned in- More information. For more information about deduct-
come). ing interest, see chapter 4 of Pub. 535. That chapter ex-
• You are using amounts paid for qualified long-term plains the following items.
care insurance to figure the deduction. • Interest you can deduct.
See Form 8962 and its separate instructions and use • Interest you cannot deduct.
Pub. 974 if the insurance plan established, or considered
to be established, under your business was obtained • How to allocate interest between personal and busi-
through the Health Insurance Marketplace and you are ness use.
claiming the premium tax credit. • Limitation on business interest.
Prepayment. You cannot deduct expenses in advance, • When to deduct interest.
even if you pay them in advance. This rule applies to any • The rules for a below-market interest rate loan. (This
expense paid far enough in advance to, in effect, create is generally a loan on which no interest is charged or
an asset with a useful life extending substantially beyond on which interest is charged at a rate below the appli-
the end of the current tax year. cable federal rate.)
Example. In 2022, you signed a 3-year insurance con-
tract. Even though you paid the premiums for 2022, 2023,
and 2024 when you signed the contract, you can only de- Legal and Professional Fees
duct the premium for 2022 on your 2022 tax return. You Legal and professional fees, such as fees charged by ac-
can deduct in 2023 and 2024 the premiums allocable to countants, that are ordinary and necessary expenses di-
those years. rectly related to operating your business are deductible on
Schedule C. However, you usually cannot deduct legal
More information. For more information about deduct-
fees you pay to acquire business assets. Add them to the
ing insurance, see chapter 6 of Pub. 535.
basis of the property.
If the fees include payments for work of a personal na-
Interest ture (such as making a will), you can take a business de-
duction only for the part of the fee related to your busi-
You can generally deduct as a business expense some or ness.
all interest you pay or accrue during the tax year on debts
Tax preparation fees. You can deduct on Schedule C
related to your business. Interest relates to your business
the cost of preparing that part of your tax return relating to
if you use the proceeds of the loan for a business ex-
your business as a sole proprietor or statutory employee.
pense. It does not matter what type of property secures
You can also deduct on Schedule C the amount you
the loan. You can deduct interest on a debt only if you
pay or incur in resolving asserted tax deficiencies for your
meet all of the following requirements.
business as a sole proprietor or statutory employee.
• You are legally liable for that debt.
• Both you and the lender intend that the debt be re-
paid. Pension Plans
• You and the lender have a true debtor-creditor rela- You can set up and maintain the following small business
tionship. retirement plans for yourself and your employees.
Certain taxpayers are required to limit their business in- • SEP (Simplified Employee Pension) plans.
terest expense deduction. See the Instructions for Form
• SIMPLE (Savings Incentive Match Plan for Employ-
8990 to determine whether you are required to limit your
ees) plans.
business interest expense deduction, who is required to
file Form 8990, and how certain businesses may elect out • Qualified plans (including Keogh or H.R. 10 plans).
of the business interest expense limitation. SEP, SIMPLE, and qualified plans offer you and your
employees a tax-favored way to save for retirement. You

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can deduct contributions you make to the plan for your More information. For more information about rent, see
employees on line 19 of Schedule C. If you are a sole pro- chapter 3 of Pub. 535.
prietor, you can deduct contributions you make to the plan
for yourself on line 16 of Schedule 1 (Form 1040). You
can also deduct trustees' fees if contributions to the plan Taxes
do not cover them. Earnings on the contributions are gen-
erally tax free until you or your employees receive distribu- You can deduct on Schedule C various federal, state, lo-
tions from the plan. You may also be able to claim a tax cal, and foreign taxes directly attributable to your busi-
credit if you begin a new qualified defined benefit or de- ness.
fined contribution plan (including a 401(k) plan), SIMPLE
plan, or SEP plan. The credit equals 50% of the cost to set Income taxes. You can deduct on Schedule C a state
up and administer the plan and educate employees about tax on gross income (as distinguished from net income)
the plan, up to a maximum of $500 per year for each of directly attributable to your business. You can deduct
the first 3 years of the plan. other state and local income taxes on Schedule A (Form
1040) if you itemize your deductions. Do not deduct fed-
Under certain plans, employees can have you contrib- eral income tax.
ute limited amounts of their before-tax pay to a plan.
These amounts (and earnings on them) are generally tax Employment taxes. You can deduct the social security,
free until your employees receive distributions from the Medicare, and FUTA taxes you paid out of your own funds
plan. as an employer. Employment taxes are discussed briefly
in chapter 1. You can also deduct payments you made as
For more information on retirement plans for small busi-
an employer to a state unemployment compensation fund
ness, see Pub. 560.
or to a state disability benefit fund. Deduct these pay-
Pub. 590-A, Contributions to Individual Retire- ments as taxes.
TIP ment Arrangements (IRAs), discusses other
tax-favored ways to save for retirement. SE tax. You can deduct one-half of your SE tax on line 15
of Schedule 1 (Form 1040). SE tax is discussed in chap-
ter 1 and chapter 10.

Rent Expense Personal property tax. You can deduct on Schedule C
any tax imposed by a state or local government on per-
Rent is any amount you pay for the use of property you do sonal property used in your business.
not own. In general, you can deduct rent as a business ex- You can also deduct registration fees for the right to
pense only if the rent is for property you use in your busi- use property within a state or local area.
ness. If you have or will receive equity in or title to the
property, you cannot deduct the rent. Example. May and Julius Winter drove their car 7,000
business miles out of a total of 10,000 miles. They had to
Unreasonable rent. You cannot take a rental deduction pay $25 for their annual state license tags and $20 for
for unreasonable rents. Ordinarily, the issue of reasona- their city registration sticker. They also paid $235 in city
bleness arises only if you and the lessor are related. Rent personal property tax on the car, for a total of $280. They
paid to a related person is reasonable if it is the same are claiming their actual car expenses. Because they
amount you would pay to a stranger for use of the same used the car 70% for business, they can deduct 70% of
property. Rent is not unreasonable just because it is fig- the $280, or $196, as a business expense.
ured as a percentage of gross receipts.
Related persons include members of your immediate Real estate taxes. You can deduct on Schedule C the
family, including siblings (either whole or half), your real estate taxes you pay on your business property. De-
spouse, ancestors, and lineal descendants. For a list of ductible real estate taxes are any state, local, or foreign
the other related persons, see section 267 of the Internal taxes on real estate levied for the general public welfare.
Revenue Code. The taxing authority must assess these taxes uniformly at
a like rate on all real property under its jurisdiction, and the
Rent on your home. If you rent your home and use part proceeds must be for general community or governmental
of it as your place of business, you may be able to deduct purposes.
the rent you pay for that part. You must meet the require- For more information about real estate taxes, see chap-
ments for business use of your home. For more informa- ter 5 of Pub. 535. That chapter explains special rules for
tion, see Business Use of Your Home, later. deducting the following items.
Rent paid in advance. Generally, rent paid in your busi- • Taxes for local benefits, such as those for sidewalks,
ness is deductible in the year paid or accrued. If you pay streets, water mains, and sewer lines.
rent in advance, you can deduct only the amount that ap- • Real estate taxes when you buy or sell property during
plies to your use of the rented property during the tax the year.
year. You can deduct the rest of your payment only over
the period to which it applies.

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• Real estate taxes if you use an accrual method of ac- between the airport or station and your hotel, or between
counting and choose to accrue real estate tax related the hotel and your work location away from home.
to a definite period ratably over that period.
Baggage and shipping. You can deduct the cost of
Sales tax. Treat any sales tax you pay on a service or on sending baggage and sample or display material between
the purchase or use of property as part of the cost of the your regular and temporary work locations.
service or property. If the service or the cost or use of the Car or truck. You can deduct the costs of operating
property is a deductible business expense, you can de- and maintaining your vehicle when traveling away from
duct the tax as part of that service or cost. If the property home on business. You can deduct actual expenses or
is merchandise bought for resale, the sales tax is part of the standard mileage rate (discussed earlier under Car
the cost of the merchandise. If the property is depreciable, and Truck Expenses), as well as business-related tolls
add the sales tax to the basis for depreciation. For infor- and parking. If you rent a car while away from home on
mation on the basis of property, see Pub. 551. business, you can deduct only the business-use portion of
Do not deduct state and local sales taxes im- the expenses.
! posed on the buyer that you must collect and pay Meals and lodging. You can deduct the cost of meals
CAUTION over to the state or local government. Do not in-
and lodging if your business trip is overnight or long
clude these taxes in gross receipts or sales. enough that you need to stop for sleep or rest to properly
perform your duties. You can use actual expenses or the
, standard meal allowance to calculate your deduction. In
most cases, you can deduct only 50% of your meal ex-
Excise taxes. You can deduct on Schedule C all excise penses. However, business meals are 100% deductible if
taxes that are ordinary and necessary expenses of carry- the meals are food and beverages provided by a restau-
ing on your business. Excise taxes are discussed briefly in rant and paid or incurred after December 31, 2020, and
chapter 1. before January 1, 2023. See Pub. 463 for additional infor-
mation.
Fuel taxes. Taxes on gasoline, diesel fuel, and other mo-
tor fuels you use in your business are usually included as Cleaning. You can deduct the costs of dry cleaning
part of the cost of the fuel. Do not deduct these taxes as a and laundry while on your business trip.
separate item.
You may be entitled to a credit or refund for federal ex- Telephone. You can deduct the cost of business calls
cise tax you paid on fuels used for certain purposes. For while on your business trip, including business communi-
more information, see Pub. 510. cation by fax machine or other communication devices.
Tips. You can deduct the tips you pay for any expense
in this list.
Travel and Meals More information. For more information about travel
This section briefly explains the kinds of travel and meal expenses, see Pub. 463.
expenses you can deduct on Schedule C.
Reimbursing your employees for expenses. You can
Travel expenses. These are the ordinary and necessary generally deduct the amount you reimburse your employ-
expenses of traveling away from home for your business. ees for travel and meal expenses. The reimbursement you
You are traveling away from home if both the following deduct and the manner in which you deduct it depend in
conditions are met. part on whether you reimburse the expenses under an ac-
countable plan or a nonaccountable plan. For details, see
1. Your duties require you to be away from the general chapter 11 of Pub. 535. That chapter explains accounta-
area of your tax home (defined later) substantially lon- ble and nonaccountable plans and tells you whether to re-
ger than an ordinary day's work. port the reimbursement on your employee's Form W-2.
2. You need to get sleep or rest to meet the demands of
your work while away from home.
Business Use of Your Home
Generally, your tax home is your regular place of busi-
ness, regardless of where you maintain your family home. To deduct expenses related to the part of your home used
It includes the entire city or general area in which your for business, you must meet specific requirements. Even
business is located. See Pub. 463 for more information. then, your deduction may be limited.
The following is a brief discussion of the expenses you
can deduct. To qualify to claim expenses for business use of your
home, you must meet the following tests.
Transportation. You can deduct the cost of travel by
airplane, train, bus, or car between your home and your 1. Your use of the business part of your home must be:
business destination. a. Exclusive (however, see Exceptions to exclusive
Taxi, commuter bus, and limousine. You can de- use, later),
duct fares for these and other types of transportation b. Regular, and

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c. For your business. previous rules, you determine your principal place of busi-
ness based on the following factors.
2. The business part of your home must be:
• The relative importance of the activities performed at
a. Your principal place of business (defined later); each location.
b. A place where you meet or deal with patients, cli- • If the relative importance factor does not determine
ents, or customers in the normal course of your your principal place of business, you can also con-
business; or sider the time spent at each location.
c. A separate structure (not attached to your home) If, after considering your business locations, your home
you use in connection with your business. cannot be identified as your principal place of business,
you cannot deduct home office expenses. However, for
Exclusive use. To qualify under the exclusive use test, other ways to qualify to deduct home office expenses, see
you must use a specific area of your home only for your Pub. 587.
trade or business. The area used for business can be a
room or other separately identifiable space. The space Deduction limit. If your gross income from the business
does not need to be marked off by a permanent partition. use of your home equals or exceeds your total business
You do not meet the requirements of the exclusive use expenses (including depreciation), you can deduct all
test if you use the area in question both for business and your business expenses related to the use of your home.
for personal purposes. If your gross income from the business use is less than
your total business expenses, your deduction for certain
Example. You are an attorney and use a den in your expenses for the business use of your home is limited.
home to write legal briefs and prepare clients' tax returns. Your deduction of otherwise nondeductible expenses,
Your family also uses the den for recreation. The den is such as insurance, utilities, and depreciation (with depre-
not used exclusively in your profession, so you cannot ciation taken last), allocable to the business is limited to
claim a business deduction for its use. the gross income from the business use of your home mi-
Exceptions to exclusive use. You do not have to nus the sum of the following.
meet the exclusive use test to the extent you use part of 1. The business part of expenses you could deduct even
your home in either of the following ways. if you did not use your home for business (such as
1. For the storage of inventory or product samples. mortgage interest, real estate taxes, and casualty and
theft losses that are allowable as itemized deductions
2. As a daycare facility. on Schedule A (Form 1040)).
For an explanation of these exceptions, see Pub. 587, 2. The business expenses that relate to the business ac-
Business Use of Your Home. tivity in the home (for example, business phone, sup-
plies, and depreciation on equipment), but not to the
Regular use. To qualify under the regular use test, you
use of the home itself.
must use a specific area of your home for business on a
continuing basis. You do not meet the test if your business Do not include in (2) above your deduction for one-half of
use of the area is only occasional or incidental, even if you your SE tax.
do not use that area for any other purpose. Use Form 8829, Expenses for Business Use of Your
Home, to figure your deduction.
Principal place of business. You can have more than
one business location, including your home, for a single Simplified method. The IRS provides a simplified
trade or business. To qualify to deduct the expenses for method to determine your expenses for business use of
the business use of your home under the principal place your home. The simplified method is an alternative to cal-
of business test, your home must be your principal place culating and substantiating actual expenses. In most ca-
of business for that business. To determine your principal ses, you will figure your deduction by multiplying $5 by the
place of business, you must consider all the facts and cir- area of your home used for a qualified business use. The
cumstances. area you use to figure your deduction is limited to 300
Your home office will qualify as your principal place of square feet. For more information, see the Instructions for
business for deducting expenses for its use if you meet Schedule C.
the following requirements.
More information. For more information on deducting
• You use it exclusively and regularly for administrative expenses for the business use of your home, see Pub.
or management activities of your business. 587.
• You have no other fixed location where you conduct
substantial administrative or management activities of
your business. De Minimis Safe Harbor for
Alternatively, if you use your home exclusively and reg- Tangible Property
ularly for your business, but your home office does not
qualify as your principal place of business based on the Generally, you must capitalize costs to acquire or produce
real or tangible personal property used in your trade or

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business, such as buildings, equipment, or furniture. How- • Entertainment expenses.
ever, if you elect to use the de minimis safe harbor for tan-
• Improvements to real or tangible personal property.
gible property, you may deduct de minimis amounts paid
Improvements are amounts paid for betterments to
to acquire or produce certain tangible property if these
your property, restorations of your property, or work
amounts are deducted by you for financial accounting pur-
that adapts your property to a new or different use.
poses or in keeping your books and records.
• Lobbying expenses.
If you have an applicable financial statement, you may
use this safe harbor to deduct amounts paid for tangible • Penalties and fines you pay to a governmental agency
property up to $5,000 per item or invoice. If you do not or instrumentality because you broke the law.
have an applicable financial statement, you may use the • Personal, living, and family expenses.
de minimis safe harbor to deduct amounts paid for tangi-
ble property up to $2,500 per item or invoice. • Political contributions.
Amounts qualifying under this de minimis safe harbor • Settlements or payments related to sexual harass-
should be included as other expenses in Part V of Sched- ment or sexual abuse if such settlement or payment is
ule C. subject to a nondisclosure agreement. You also can-
not deduct attorney fees related to such settlement or
More information. For details on making this election payment.
and requirements for using the de minimis safe harbor for
tangible property, see chapter 1 of Pub. 535.

Other Expenses You Can
9.
Deduct
You may also be able to deduct the following expenses.
Figuring Net Profit or
See Pub. 535 to find out whether you can deduct them.
• Advertising. Loss
• Bank fees.
• Donations to business organizations.
Introduction
• Education expenses. After figuring your business income and expenses, you
• Impairment-related expenses. are ready to figure the net profit or net loss from your busi-
• Interview expense allowances. ness. You do this by subtracting business expenses from
business income. If your expenses are less than your in-
• Licenses and regulatory fees. come, the difference is net profit and becomes part of
• Moving machinery. your income on line 3 of Schedule 1 (Form 1040). If your
expenses are more than your income, the difference is a
• Outplacement services. net loss. You can usually deduct it from gross income on
• Penalties and fines you pay for late performance or line 3 of Schedule 1 (Form 1040). But in some situations
nonperformance of a contract. your loss is limited. This chapter briefly explains three of
those situations. Other situations that may limit your loss
• Repairs and maintenance to real or tangible personal
are explained in the instructions for Schedule C, line G
property.
and line 32.
• Repayments of income.
If you have more than one business, you must fig-
• Supplies and materials. ! ure your net profit or loss for each business on a
• Utilities. CAUTION separate Schedule C.

Excess business loss limitation. Your loss from a
Expenses You Cannot Deduct trade or business may be limited. Use Form 461 to deter-
mine the amount of your excess business loss, if any.
You usually cannot deduct the following as business ex- Your excess business loss will be included as income on
penses. For more information, see Pub. 535. line 8p of Schedule 1 (Form 1040) and treated as an NOL
that you must carry forward and deduct in a subsequent
• Bribes and kickbacks.
year.
• Charitable contributions. For more information about the excess business loss
• Demolition expenses or losses. limitation, see Form 461 and its instructions.

• Dues to business, social, athletic, luncheon, sporting,
airline, and hotel clubs.

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SE tax rate. The 2022 SE tax rate on net earnings is
15.3% (12.4% social security tax plus 2.9% Medicare tax).
Net Operating Losses (NOLs)
If your deductions for the year are more than your income Maximum earnings subject to SE tax. Only the first
for the year, you may have an NOL. You can use an NOL $147,000 of your combined wages, tips, and net earnings
by deducting it from your income in another year or years. in 2022 is subject to any combination of the 12.4% social
security part of SE tax, social security tax, or the Tier 1
Examples of typical losses that may produce an NOL part of railroad retirement tax.
include, but are not limited to, losses incurred from the fol- All of your combined wages, tips, and net earnings in
lowing. 2022 are subject to any combination of the 2.9% Medicare
• Your trade or business. part of SE tax, Medicare tax, or Medicare part of railroad
retirement tax.
• A casualty or theft resulting from a federally declared If your wages and tips are subject to either social secur-
disaster. ity tax or the Tier 1 part of railroad retirement tax, or both,
• Moving expenses. and total at least $147,000, do not pay the 12.4% social
security part of the SE tax on any of your net earnings.
• Rental property.
However, you must pay the 2.9% Medicare part of the SE
A loss from operating a business is the most common tax on all your net earnings.
reason for an NOL.
Additional Medicare Tax. A 0.9% Additional Medicare
For details about NOLs, see Pub. 536. It explains how Tax may apply to you if your net earnings from self-em-
to figure an NOL, when to use it, how to claim an NOL de- ployment exceed a threshold amount (based on your filing
duction, and how to figure an NOL carryover. status). For more information, see Self-Employment (SE)
Tax in chapter 1, and Form 8959 and its instructions.

Not-for-Profit Activities
Special Rules and Exceptions
If you do not carry on your business to make a profit, there
Aliens. Generally, resident aliens must pay SE tax under
is a limit on the deductions you can take. You cannot use
the same rules that apply to U.S. citizens. Nonresident ali-
a loss from the activity to offset other income. Activities
ens are not subject to SE tax unless an international social
you do as a hobby, or mainly for sport or recreation, come
security agreement (also known as a totalization agree-
under this limit.
ment) in effect determines that they are covered under the
For details about not-for-profit activities, see chapter 1 U.S. social security system. However, residents of the
of Pub. 535. That chapter explains how to determine U.S. Virgin Islands, Puerto Rico, Guam, the Common-
whether your activity is carried on to make a profit and wealth of the Northern Mariana Islands, or American Sa-
how to figure the amount of loss you can deduct. moa are subject to SE tax, as they are considered U.S.
residents for SE tax purposes. For more information on
aliens, see Pub. 519, U.S. Tax Guide for Aliens.

Child employed by parent. You are not subject to SE
tax if you are under age 18 and you are working for your
10. father or mother.

Church employee. If you work for a church or a qualified
Self-Employment (SE) Tax church-controlled organization (other than as a minister,
member of a religious order, or Christian Science practi-
The SE tax rules apply no matter how old you are tioner) that elected an exemption from social security and
Medicare taxes, you are subject to SE tax if you receive
! and even if you are already receiving social secur-
CAUTION ity and Medicare benefits. $108.28 or more in wages from the church or organiza-
tion. For more information, see Pub. 517, Social Security
and Other Information for Members of the Clergy and Reli-
gious Workers.
Who Must Pay SE Tax?
Fishing crew member. If you are a member of the crew
Generally, you must pay SE tax and file Schedule SE on a boat that catches fish or other aquatic life, your earn-
(Form 1040) if your net earnings from self-employment ings are subject to SE tax if all the following conditions ap-
were $400 or more. Use Schedule SE to figure net earn- ply.
ings from self-employment.
1. You do not get any pay for the work except your share
Sole proprietor or independent contractor. If you are of the catch or a share of the proceeds from the sale
self-employed as a sole proprietor or independent con- of the catch, unless the pay meets all the following
tractor, you generally use Schedule C (Form 1040) to fig- conditions.
ure your earnings subject to SE tax.

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a. The pay is not more than $100 per trip. More Than One Business
b. The pay is received only if there is a minimum
If you have earnings subject to SE tax from more than one
catch.
trade, business, or profession, you must combine the net
c. The pay is solely for additional duties (such as profit (or loss) from each to determine your total earnings
mate, engineer, or cook) for which additional cash subject to SE tax. A loss from one business reduces your
pay is traditional in the fishing industry. profit from another business.
2. You get a share of the catch or a share of the pro-
ceeds from the sale of the catch. Community Property Income

3. Your share depends on the amount of the catch. If any of the income from a trade or business, other than a
partnership, is community property income under state
4. The boat's operating crew normally numbers fewer
law, it is included in the earnings subject to SE tax of the
than 10 individuals. (An operating crew is considered
spouse carrying on the trade or business.
as normally made up of fewer than 10 if the average
size of the crew on trips made during the last 4 calen-
dar quarters is fewer than 10.) Gain or Loss

Notary public. Fees you receive for services you per- Do not include in earnings subject to SE tax a gain or loss
form as a notary public are reported on Schedule C but from the disposition of property that is neither stock in
are not subject to SE tax (see the Instructions for Sched- trade nor held primarily for sale to customers. It does not
ule SE (Form 1040)). matter whether the disposition is a sale, an exchange, or
an involuntary conversion.
State or local government employee. You are subject
to SE tax if you are an employee of a state or local govern- Lost Income Payments
ment, are paid solely on a fee basis, and your services are
not covered under a federal-state social security agree- If you are self-employed and reduce or stop your business
ment. activities, any payment you receive from insurance or
other sources for the lost business income is included in
Foreign government or international organization earnings subject to SE tax. If you are not working when
employee. You are subject to SE tax if both the following you receive the payment, it still relates to your business
conditions are true. and is included in earnings subject to SE tax, even though
1. You are a U.S. citizen employed in the United States, your business is temporarily inactive.
Puerto Rico, Guam, American Samoa, the Common-
wealth of the Northern Mariana Islands, or the U.S. Figuring Earnings Subject to SE Tax
Virgin Islands by:
Methods for Figuring Net Earnings
a. A foreign government,
There are three ways to figure net earnings from self-em-
b. A wholly owned agency of a foreign government,
ployment.
or
1. The regular method.
c. An international organization.
2. The nonfarm optional method.
2. Your employer is not required to withhold social se-
curity and Medicare taxes from your wages. 3. The farm optional method.

U.S. citizen or resident alien residing abroad. If you You must use the regular method to the extent you do
are a self-employed U.S. citizen or resident alien living not use one or both of the optional methods.
outside the United States, in most cases you must pay SE
tax. Foreign earnings from self-employment can’t be re- Why use an optional method? You may want to use
duced by your foreign earned income exclusion when the optional methods (discussed later) when you have a
computing self-employment tax. loss or a small net profit and any one of the following ap-
plies.
Exception. The United States has social security
agreements with many countries to eliminate double taxa- • You want to receive credit for social security benefit
tion under two social security systems. Under these coverage.
agreements, you must generally only pay social security • You incurred child or dependent care expenses for
and Medicare taxes to the country in which you live. The which you could claim a credit. (An optional method
country to which you must pay the tax will issue a certifi- may increase your earned income, which could in-
cate that serves as proof of exemption from social security crease your credit.)
tax in the other country.
For more information, see the Instructions for Sched- • You are entitled to the earned income credit. (An op-
ule SE (Form 1040). tional method may increase your earned income,
which could increase your credit.)

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• You are entitled to the additional child tax credit. (An However, you may need to adjust the amount reported
optional method may increase your earned income, on Schedule K-1 if you are a general partner or if it is a
which could increase your credit.) loss.

Effects of using an optional method. Using an optional Gross nonfarm income. Your gross nonfarm income is
method could increase your SE tax. Paying more SE tax generally the total of the amounts from:
could result in your getting higher benefits when you re-
• Line 7 of Schedule C (Form 1040); and
tire.
Using the optional methods may also decrease your • Box 14, code C, of Schedule K-1 (Form 1065) (from
AGI due to the deduction for one-half of SE tax on Form nonfarm partnerships).
1040 or 1040-SR, which may affect your eligibility for
credits, deductions, or other items that are subject to an Figuring Nonfarm Net Earnings
AGI limit. Figure your AGI with and without using the op-
tional methods to see if the optional methods will benefit If you meet the three tests explained earlier, use the fol-
you. lowing table to figure your nonfarm net earnings from
If you use either or both optional methods, you must fig- self-employment under the nonfarm optional method.
ure and pay the SE tax due under these methods even if
you would have had a smaller tax or no tax using the regu- Table 10-1. Figuring Nonfarm Net Earnings
lar method.
The optional methods may be used only to figure your IF your gross nonfarm THEN your net
SE tax. To figure your income tax, include your actual income is... earnings are equal to...
earnings in gross income, regardless of which method you
use to determine SE tax. $9,060 or less two-thirds of your gross
nonfarm income.
Regular Method more than $9,060 $6,040.

To figure net earnings using the regular method, multiply
your self-employment earnings by 92.35% (0.9235). For Optional net earnings less than actual net earnings.
your net earnings figured using the regular method, see You cannot use this method to report an amount less than
line 4a of your Schedule SE (Form 1040). your actual nonfarm net earnings from self-employment.
Your actual nonfarm net earnings are your nonfarm net
Net earnings figured using the regular method are also earnings figured using the regular method, explained ear-
called actual net earnings. lier.

Nonfarm Optional Method Gross nonfarm income of $9,060 or less. The follow-
ing examples illustrate how to figure net earnings when
Use the nonfarm optional method only for earnings that do gross nonfarm income is $9,060 or less.
not come from farming. You may use this method if you
meet all the following tests. Example 1. Net nonfarm profit less than $6,540
and less than 72.189% of gross nonfarm income.
1. You are self-employed on a regular basis. This means Ann Green runs a craft business. Her actual net earnings
that your actual net earnings from self-employment from self-employment were $800 in 2020 and $900 in
were $400 or more in at least 2 of the 3 tax years be- 2021. She meets the test for being self-employed on a
fore the one for which you use this method. For this regular basis. She has used the nonfarm optional method
purpose, the prior-year net earnings can be from ei- less than 5 years. Her gross income and net profit in 2022
ther farm or nonfarm earnings or both. are as follows.
2. You have used this method less than 5 years. (There
is a 5-year lifetime limit.) The years do not have to be Gross nonfarm income. . . . . . . . . . . . . . . . . . . . . . $5,400
one after another. Net nonfarm profit. . . . . . . . . . . . . . . . . . . . . . . . . $1,200

3. Your net nonfarm profits were: Ann's actual net earnings for 2022 are $1,108 ($1,200
× 0.9235). Because her net profit is less than $6,540 and
a. Less than $6,540, and less than 72.189% of her gross income, she can use the
b. Less than 72.189% of your gross nonfarm income. nonfarm optional method to figure net earnings of $3,600
( / × $5,400). Because these net earnings are higher than 2 3
Net nonfarm profit. Net nonfarm profit is generally the her actual net earnings, she can report net earnings of
total of the amounts from: $3,600 for 2022.
• Line 31 of Schedule C (Form 1040); and
Example 2. Net nonfarm profit less than $6,540 but
• Box 14, code A, of Schedule K-1 (Form 1065) (from not less than 72.189% of gross nonfarm income. As-
nonfarm partnerships). sume that in Example 1 Ann's gross income is $1,200 and
her net profit is $900. She must use the regular method to

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figure her net earnings. She cannot use the nonfarm op- To figure your net earnings using both optional meth-
tional method because her net profit is not less than ods, you must do the following.
72.189% of her gross income.
• Figure your farm and nonfarm net earnings separately
Example 3. Net loss from a nonfarm business. As- under each method. Do not combine farm earnings
sume that in Example 1 Ann has a net loss of $700. She with nonfarm earnings to figure your net earnings un-
can use the nonfarm optional method and report $3,600 der either method.
( / × $5,400) as her net earnings.2 3 • Add the net earnings figured under each method to ar-
rive at your total net earnings from self-employment.
Example 4. Nonfarm net earnings less than $400.
Assume that in Example 1 Ann has gross income of $525 You can report less than your total actual farm and non-
and a net profit of $175. In this situation, she would not farm net earnings but not less than actual nonfarm net
pay any SE tax under either the regular method or the earnings. If you use both optional methods, you can report
nonfarm optional method because her net earnings under no more than $6,040 as your combined net earnings from
both methods are less than $400. self-employment.

Gross nonfarm income of more than $9,060. The fol- Example. You are a self-employed farmer. You also
lowing examples illustrate how to figure net earnings when operate a retail grocery store. Your gross income, actual
gross nonfarm income is more than $9,060. net earnings from self-employment, and optional farm and
optional nonfarm net earnings from self-employment are
Example 1. Net nonfarm profit less than $6,540 shown in Table 10-2.
and less than 72.189% of gross nonfarm income.
John White runs an appliance repair shop. His actual net Table 10-2. Example—Farm and Nonfarm
earnings from self-employment were $10,500 in 2020 and Earnings
$9,500 in 2021. He meets the test for being self-employed
on a regular basis. He has used the nonfarm optional Income and
method less than 5 years. His gross income and net profit Earnings Farm Nonfarm
in 2022 are as follows.
Gross income $4,500 $6,000
Gross nonfarm income. . . . . . . . . . . . . . . . . . . . . . $12,000 Actual net earnings $900 $500
Net nonfarm profit. . . . . . . . . . . . . . . . . . . . . . . . . $1,200
Optional net
John's actual net earnings for 2022 are $1,108 ($1,200 earnings ( / of 2 3
× 0.9235). Because his net profit is less than $6,540 and gross income) $3,000 $4,000
less than 72.189% of his gross income, he can use the
nonfarm optional method to figure net earnings of $6,040. Table 10-3 shows four methods or combinations of
Because these net earnings are higher than his actual net methods you can use to figure net earnings from self-em-
earnings, he can report net earnings of $6,040 for 2022. ployment using the farm and nonfarm gross income and
actual net earnings shown in Table 10-2.
Example 2. Net nonfarm profit not less than
$6,540. Assume that in Example 1 John's net profit is • Method 1. Using the regular method for both farm and
$6,900. He must use the regular method. He cannot use nonfarm income.
the nonfarm optional method because his net nonfarm • Method 2. Using the optional method for farm income
profit is not less than $6,540. and the regular method for nonfarm income.
Example 3. Net loss from a nonfarm business. As- • Method 3. Using the regular method for farm income
sume that in Example 1 John has a net loss of $700. He and the optional method for nonfarm income.
can use the nonfarm optional method and report $6,040 • Method 4. Using the optional method for both farm
as his net earnings from self-employment. and nonfarm income.
Note. Actual net earnings are the same as net earnings
Farm Optional Method figured using the regular method.
Use the farm optional method only for earnings from a
farming business. See Pub. 225 for information about this
method.

Using Both Optional Methods

If you have both farm and nonfarm earnings, you may be
able to use both optional methods to determine your net
earnings from self-employment.

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Table 10-3. Example—Net Earnings profit of $25,000. You also have a cabinetmaking busi-
ness that had a net loss of $500. You must file a Sched-
Net ule C for the restaurant showing your net profit of $25,000
Earnings 1 2 3 4 and another Schedule C for the cabinetmaking business
showing your net loss of $500. You file one Schedule SE
Actual showing total earnings subject to SE tax of $24,500.
farm $ 900 $ 900

Optional
farm $ 3,000 $ 3,000
Actual 11.
nonfarm $ 500 $ 500

Optional Your Rights as a
nonfarm $4,000 $4,000
Taxpayer
Amount
you can This chapter explains the examination, appeal, collection,
report: $1,400 $3,500 $4,900 $6,040* and refund processes.

* Limited to $6,040 because you used both optional methods.
Examinations, Appeals,
Fiscal Year Filer
Collections, and Refunds
If you use a tax year other than the calendar year, you Examinations (audits). We accept most taxpayers' re-
must use the tax rate and maximum earnings limit in effect turns as filed. If we inquire about your return or select it for
at the beginning of your tax year. Even if the tax rate or examination, it does not suggest that you are dishonest.
maximum earnings limit changes during your tax year, The inquiry or examination may or may not result in more
continue to use the same rate and limit throughout your tax. We may close your case without change or you may
tax year. receive a refund.
The process of selecting a return for examination usu-
ally begins in one of two ways. One way is to use com-
Reporting SE Tax puter programs to identify returns that may have incorrect
amounts. These programs may be based on information
Use Schedule SE (Form 1040) to figure and report your returns, such as Forms 1099 and W-2; on studies of past
SE tax. Then enter the SE tax on line 4 of Schedule 2 examinations; or on certain issues identified by other spe-
(Form 1040) and attach Schedule SE to Form 1040 or cial projects. Another way is to use information from com-
1040-SR. pliance projects that indicates that a return may have in-
If you have to pay SE tax, you must file Form correct amounts. These sources may include
newspapers, public records, and individuals. If we deter-
! 1040 or 1040-SR (with Schedule SE attached) mine that the information is accurate and reliable, we may
CAUTION even if you do not otherwise have to file a federal
income tax return. use it to select a return for examination.
Pub. 556, Examination of Returns, Appeal Rights, and
Claims for Refund, explains the rules and procedures that
Joint return. Even if you file a joint return, you cannot file
we follow in examinations. The following sections give an
a joint Schedule SE. This is true whether one spouse or
overview of how we conduct examinations.
both spouses have earnings subject to SE tax. If both of
you have earnings subject to SE tax, each of you must By mail. We handle many examinations and inquiries
complete a separate Schedule SE. Attach both schedules by mail. We will send you a letter with either a request for
to the joint return. more information or a reason why we believe a change to
your return may be needed. You can respond by mail or
More than one business. If you have more than one you can request a personal interview with an examiner. If
trade or business, you must combine the net profit (or you mail us the requested information or provide an ex-
loss) from each business to figure your SE tax. A loss from planation, we may or may not agree with you, and we will
one business will reduce your profit from another busi- explain the reasons for any changes. Please do not hesi-
ness. File one Schedule SE showing the earnings from tate to write to us about anything you do not understand.
self-employment, but file a separate Schedule C or F for
each business. By interview. If we notify you that we will conduct your
examination through a personal interview, or you request
Example. You are the sole proprietor of two separate such an interview, you have the right to ask that the ex-
businesses. You operate a restaurant that made a net amination take place at a reasonable time and place that

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is convenient for both you and the IRS. If our examiner Spouse Relief, and Form 8857, or you can call the Inno-
proposes any changes to your return, they will explain the cent Spouse office toll free at 855-851-2009.
reasons for the changes. If you do not agree with these
changes, you can meet with the examiner's supervisor. Potential third-party contacts. Generally, the IRS will
deal directly with you or your duly authorized representa-
Repeat examinations. If we examined your return for tive. However, we sometimes talk with other persons if we
the same items in either of the 2 previous years and pro- need information that you have been unable to provide, or
posed no change to your tax liability, please contact us as to verify information we have received. If we do contact
soon as possible so we can see if we should discontinue other persons, such as a neighbor, bank, employer, or
the examination. employees, we will generally need to tell them limited in-
formation, such as your name. The law prohibits us from
Appeals. If you do not agree with the examiner's pro-
disclosing any more information than is necessary to ob-
posed changes, you can appeal them to the IRS Inde-
tain or verify the information we are seeking. Our need to
pendent Office of Appeals. Most differences can be set-
contact other persons may continue as long as there is
tled without expensive and time-consuming court trials.
activity in your case. If we do contact other persons, you
Your appeal rights are explained in detail in both Pub. 5,
have a right to request a list of those contacted. Your re-
Your Appeal Rights and How to Prepare a Protest if You
quest can be made by telephone, in writing, or during a
Disagree, and Pub. 556.
personal interview.
If you do not wish to use the Appeals Office or disagree
with its findings, you may be able to take your case to the Refunds. You can file a claim for refund if you think you
U.S. Tax Court, U.S. Court of Federal Claims, or the U.S. paid too much tax. You must generally file the claim within
District Court where you live. If you take your case to 3 years from the date you filed your original return or 2
court, the IRS will have the burden of proving certain facts years from the date you paid the tax, whichever is later.
if you kept adequate records to show your tax liability, co- Pub. 556 has more information on refunds.
operated with the IRS, and meet certain other conditions. If you were due a refund but you did not file a return,
If the court agrees with you on most issues in your case you must file a refund claim within 2 years from the time
and finds that our position was largely unjustified, you may the tax was paid to get that refund. The law generally pro-
be able to recover some of your administrative and litiga- vides for interest on your refund if it is not paid within 45
tion costs. You will not be eligible to recover these costs days of the date you filed your return or claim for refund.
unless you tried to resolve your case administratively, in-
cluding going through the appeals system, and you gave
us the information necessary to resolve the case.

Collections. Pub. 594, The IRS Collection Process, ex-
plains your rights and responsibilities regarding payment 12.
of federal taxes. It describes the following.
• What to do when you owe taxes. It describes what to
do if you get a tax bill and what to do if you think your How To Get More
bill is wrong. It also covers making installment pay-
ments, delaying collection action, and submitting an Information
offer in compromise.
This section describes the help the IRS and other federal
• IRS collection actions. It covers liens, releasing a lien,
agencies offer to taxpayers who operate their own busi-
levies, releasing a levy, seizures and sales, and re-
nesses.
lease of property.
• IRS certification to the State Department of a seriously
delinquent tax debt, which will generally result in de- How To Get Tax Help
nial of a passport application and may lead to revoca-
tion of a passport. If you have questions about a tax issue; need help prepar-
Your collection appeal rights are explained in detail in ing your tax return; or want to download free publications,
Pub. 1660, Collection Appeal Rights. forms, or instructions, go to IRS.gov to find resources that
can help you right away.
Innocent spouse relief. Generally, both you and your
spouse are responsible, jointly and individually, for paying Preparing and filing your tax return. After receiving all
the full amount of any tax, interest, or penalties due on your wage and earnings statements (Forms W-2, W-2G,
your joint return. To seek relief from any liability related to 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
your spouse (or former spouse), you must file a claim on compensation statements (by mail or in a digital format) or
Form 8857, Request for Innocent Spouse Relief. In some other government payment statements (Form 1099-G);
cases, Form 8857 may need to be filed within 2 years of and interest, dividend, and retirement statements from
the date on which the IRS first attempted to collect the tax banks and investment firms (Forms 1099), you have sev-
from you. Do not file Form 8857 with your Form 1040 or eral options to choose from to prepare and file your tax re-
1040-SR. For more information, see Pub. 971, Innocent turn. You can prepare the tax return yourself, see if you

Chapter 12 How To Get More Information Page 45

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qualify for free tax preparation, or hire a tax professional to • The Sales Tax Deduction Calculator IRS.gov/ (
prepare your return. SalesTax) figures the amount you can claim if you
itemize deductions on Schedule A (Form 1040).
Free options for tax preparation. Go to IRS.gov to see
your options for preparing and filing your return online or Getting answers to your tax questions. On
in your local community, if you qualify, which include the IRS.gov, you can get up-to-date information on
following. current events and changes in tax law.
• Free File. This program lets you prepare and file your • IRS.gov/Help: A variety of tools to help you get an-
federal individual income tax return for free using swers to some of the most common tax questions.
brand-name tax-preparation-and-filing software or • IRS.gov/ITA: The Interactive Tax Assistant, a tool that
Free File fillable forms. However, state tax preparation will ask you questions and, based on your input, pro-
may not be available through Free File. Go to IRS.gov/ vide answers on a number of tax law topics.
FreeFile to see if you qualify for free online federal tax
preparation, e-filing, and direct deposit or payment op- • IRS.gov/Forms: Find forms, instructions, and publica-
tions. You will find details on the most recent tax
tions.
changes and interactive links to help you find answers
• VITA. The Volunteer Income Tax Assistance (VITA) to your questions.
program offers free tax help to people with
low-to-moderate incomes, persons with disabilities, • You may also be able to access tax law information in
your electronic filing software.
and limited-English-speaking taxpayers who need
help preparing their own tax returns. Go to IRS.gov/
VITA, download the free IRS2Go app, or call Need someone to prepare your tax return? There are
800-906-9887 for information on free tax return prepa- various types of tax return preparers, including enrolled
ration. agents, certified public accountants (CPAs), accountants,
• TCE. The Tax Counseling for the Elderly (TCE) pro- and many others who don’t have professional credentials.
gram offers free tax help for all taxpayers, particularly If you choose to have someone prepare your tax return,
those who are 60 years of age and older. TCE volun- choose that preparer wisely. A paid tax preparer is:
teers specialize in answering questions about pen- • Primarily responsible for the overall substantive accu-
sions and retirement-related issues unique to seniors. racy of your return,
Go to IRS.gov/TCE, download the free IRS2Go app,
or call 888-227-7669 for information on free tax return • Required to sign the return, and
preparation. • Required to include their preparer tax identification
number (PTIN).
• MilTax. Members of the U.S. Armed Forces and
qualified veterans may use MilTax, a free tax service Although the tax preparer always signs the return,
offered by the Department of Defense through Military you're ultimately responsible for providing all the informa-
OneSource. For more information, go to tion required for the preparer to accurately prepare your
MilitaryOneSource MilitaryOneSource.mil/MilTax ( ). return. Anyone paid to prepare tax returns for others
Also, the IRS offers Free Fillable Forms, which can should have a thorough understanding of tax matters. For
be completed online and then filed electronically re- more information on how to choose a tax preparer, go to
gardless of income. Tips for Choosing a Tax Preparer on IRS.gov.

Using online tools to help prepare your return. Go to Coronavirus. Go to IRS.gov/Coronavirus for links to in-
IRS.gov/Tools for the following. formation on the impact of the coronavirus, as well as tax
• The Earned Income Tax Credit Assistant IRS.gov/ ( relief available for individuals and families, small and large
EITCAssistant) determines if you’re eligible for the businesses, and tax-exempt organizations.

earned income credit (EIC). Employers can register to use Business Services On-
• The Online EIN Application IRS.gov/EIN ( ) helps you line. The Social Security Administration (SSA) offers on-
get an employer identification number (EIN) at no line service at SSA.gov/employer for fast, free, and secure
cost. online W-2 filing options to CPAs, accountants, enrolled
agents, and individuals who process Form W-2, Wage
• The Tax Withholding Estimator IRS.gov/W4app ( )
and Tax Statement, and Form W-2c, Corrected Wage and
makes it easier for you to estimate the federal income
Tax Statement.
tax you want your employer to withhold from your pay-
check. This is tax withholding. See how your withhold- IRS social media. Go to IRS.gov/SocialMedia to see the
ing affects your refund, take-home pay, or tax due. various social media tools the IRS uses to share the latest
• The First-Time Homebuyer Credit Account Look-up information on tax changes, scam alerts, initiatives, prod-
(IRS.gov/HomeBuyer) tool provides information on ucts, and services. At the IRS, privacy and security are
your repayments and account balance. our highest priority. We use these tools to share public in-
formation with you. Don’t post your social security number
(SSN) or other confidential information on social media

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sites. Always protect your identity when using any social Note. IRS eBooks have been tested using Apple's
networking site. iBooks for iPad. Our eBooks haven’t been tested on other
The following IRS YouTube channels provide short, in- dedicated eBook readers, and eBook functionality may
formative videos on various tax-related topics in English, not operate as intended.
Spanish, and ASL.
Access your online account (individual taxpayers
• Youtube.com/irsvideos. only). Go to IRS.gov/Account to securely access infor-
• Youtube.com/irsvideosmultilingua. mation about your federal tax account.
• Youtube.com/irsvideosASL. • View the amount you owe and a breakdown by tax
year.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations • See payment plan details or apply for a new payment
plan.
for individuals, small businesses, and tax professionals.
• Make a payment or view 5 years of payment history
Online tax information in other languages. You can and any pending or scheduled payments.
find information on IRS.gov/MyLanguage if English isn’t
your native language. • Access your tax records, including key data from your
most recent tax return, and transcripts.
Free Over-the-Phone Interpreter (OPI) Service. The • View digital copies of select notices from the IRS.
IRS is committed to serving our multilingual customers by
offering OPI services. The OPI Service is a federally fun- • Approve or reject authorization requests from tax pro-
ded program and is available at Taxpayer Assistance fessionals.
Centers (TACs), other IRS offices, and every VITA/TCE • View your address on file or manage your communi-
return site. The OPI Service is accessible in more than cation preferences.
350 languages.
Tax Pro Account. This tool lets your tax professional
Accessibility Helpline available for taxpayers with submit an authorization request to access your individual
disabilities. Taxpayers who need information about ac- taxpayer IRS online account. For more information, go to
cessibility services can call 833-690-0598. The Accessi- IRS.gov/TaxProAccount.
bility Helpline can answer questions related to current and
future accessibility products and services available in al- Using direct deposit. The fastest way to receive a tax
ternative media formats (for example, braille, large print, refund is to file electronically and choose direct deposit,
audio, etc.). The Accessibility Helpline does not have ac- which securely and electronically transfers your refund di-
cess to your IRS account. For help with tax law, refunds, rectly into your financial account. Direct deposit also
or account-related issues, go to IRS.gov/LetUsHelp. avoids the possibility that your check could be lost, stolen,
destroyed, or returned undeliverable to the IRS. Eight in
Note. Form 9000, Alternative Media Preference, or 10 taxpayers use direct deposit to receive their refunds. If
Form 9000(SP) allows you to elect to receive certain types you don’t have a bank account, go to IRS.gov/
of written correspondence in the following formats. DirectDeposit for more information on where to find a
• Standard Print. bank or credit union that can open an account online.

• Large Print. Getting a transcript of your return. The quickest way
• Braille. to get a copy of your tax transcript is to go to IRS.gov/
Transcripts. Click on either “Get Transcript Online” or “Get
• Audio (MP3). Transcript by Mail” to order a free copy of your transcript.
• Plain Text File (TXT). If you prefer, you can order your transcript by calling
800-908-9946.
• Braille Ready File (BRF).
Reporting and resolving your tax-related identity
Disasters. Go to Disaster Assistance and Emergency theft issues.
Relief for Individuals and Businesses to review the availa-
ble disaster tax relief. • Tax-related identity theft happens when someone
steals your personal information to commit tax fraud.
Getting tax forms and publications. Go to IRS.gov/ Your taxes can be affected if your SSN is used to file a
Forms to view, download, or print all the forms, instruc- fraudulent return or to claim a refund or credit.
tions, and publications you may need. Or, you can go to
• The IRS doesn’t initiate contact with taxpayers by
IRS.gov/OrderForms to place an order.
email, text messages (including shortened links), tele-
Getting tax publications and instructions in eBook phone calls, or social media channels to request or
format. You can also download and view popular tax verify personal or financial information. This includes
publications and instructions (including the Instructions for requests for personal identification numbers (PINs),
Form 1040) on mobile devices as eBooks at IRS.gov/ passwords, or similar information for credit cards,
eBooks. banks, or other financial accounts.

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• Go to IRS.gov/IdentityTheft, the IRS Identity Theft you complete the online process, you will receive im-
Central webpage, for information on identity theft and mediate notification of whether your agreement has
data security protection for taxpayers, tax professio- been approved.
nals, and businesses. If your SSN has been lost or
• Use the Offer in Compromise Pre-Qualifier to see if
stolen or you suspect you’re a victim of tax-related
you can settle your tax debt for less than the full
identity theft, you can learn what steps you should
amount you owe. For more information on the Offer in
take.
Compromise program, go to IRS.gov/OIC.
• Get an Identity Protection PIN (IP PIN). IP PINs are
six-digit numbers assigned to taxpayers to help pre- Filing an amended return. Go to IRS.gov/Form1040X
vent the misuse of their SSNs on fraudulent federal in- for information and updates.
come tax returns. When you have an IP PIN, it pre-
Checking the status of your amended return. Go to
vents someone else from filing a tax return with your
IRS.gov/WMAR to track the status of Form 1040-X amen-
SSN. To learn more, go to IRS.gov/IPPIN.
ded returns.
Ways to check on the status of your refund.
Note. It can take up to 3 weeks from the date you filed
• Go to IRS.gov/Refunds. your amended return for it to show up in our system, and
• Download the official IRS2Go app to your mobile de- processing it can take up to 16 weeks.
vice to check your refund status.
Understanding an IRS notice or letter you’ve re-
• Call the automated refund hotline at 800-829-1954. ceived. Go to IRS.gov/Notices to find additional informa-
tion about responding to an IRS notice or letter.
Note. The IRS can’t issue refunds before mid-Febru-
ary for returns that claimed the EIC or the additional child Note. You can use Schedule LEP (Form 1040), Re-
tax credit (ACTC). This applies to the entire refund, not quest for Change in Language Preference, to state a pref-
just the portion associated with these credits. erence to receive notices, letters, or other written commu-
nications from the IRS in an alternative language. You
Making a tax payment. Go to IRS.gov/Payments for in- may not immediately receive written communications in
formation on how to make a payment using any of the fol- the requested language. The IRS’s commitment to LEP
lowing options. taxpayers is part of a multi-year timeline that is scheduled
• IRS Direct Pay: Pay your individual tax bill or estima- to begin providing translations in 2023. You will continue
ted tax payment directly from your checking or sav- to receive communications, including notices and letters
ings account at no cost to you. in English until they are translated to your preferred lan-
guage.
• Debit or Credit Card: Choose an approved payment
processor to pay online or by phone. Contacting your local IRS office. Keep in mind, many
• Electronic Funds Withdrawal: Schedule a payment questions can be answered on IRS.gov without visiting an
when filing your federal taxes using tax return prepara- IRS TAC. Go to IRS.gov/LetUsHelp for the topics people
tion software or through a tax professional. ask about most. If you still need help, IRS TACs provide
tax help when a tax issue can’t be handled online or by
• Electronic Federal Tax Payment System: Best option phone. All TACs now provide service by appointment, so
for businesses. Enrollment is required. you’ll know in advance that you can get the service you
• Check or Money Order: Mail your payment to the ad- need without long wait times. Before you visit, go to
dress listed on the notice or instructions. IRS.gov/TACLocator to find the nearest TAC and to check
hours, available services, and appointment options. Or,
• Cash: You may be able to pay your taxes with cash at
on the IRS2Go app, under the Stay Connected tab,
a participating retail store.
choose the Contact Us option and click on “Local Offices.”
• Same-Day Wire: You may be able to do same-day
wire from your financial institution. Contact your finan- The Taxpayer Advocate Service (TAS)
cial institution for availability, cost, and time frames.
Is Here To Help You
Note. The IRS uses the latest encryption technology to What Is TAS?
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are TAS is an independent organization within the IRS that
safe and secure. Paying electronically is quick, easy, and helps taxpayers and protects taxpayer rights. Their job is
faster than mailing in a check or money order. to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
What if I can’t pay now? Go to IRS.gov/Payments for of Rights.
more information about your options.
• Apply for an online payment agreement IRS.gov/ (
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once

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How Can You Learn About Your Taxpayer
Rights? Small Business Administration
The Taxpayer Bill of Rights describes 10 basic rights that The Small Business Administration (SBA) offers training
all taxpayers have when dealing with the IRS. Go to and educational programs, counseling services, financial
TaxpayerAdvocate.IRS.gov to help you understand what programs, and contract assistance for small business
these rights mean to you and how they apply. These are owners. The SBA also has publications and videos on a
your rights. Know them. Use them. variety of business topics. The following briefly describes
assistance provided by the SBA.
What Can TAS Do for You?
Small Business Development Centers (SBDCs).
TAS can help you resolve problems that you can’t resolve SBDCs provide counseling, training, and technical serv-
with the IRS. And their service is free. If you qualify for ices to current and prospective small business owners
their assistance, you will be assigned to one advocate who cannot afford the services of a private consultant.
who will work with you throughout the process and will do Help is available when beginning, improving, or expand-
everything possible to resolve your issue. TAS can help ing a small business.
you if:
Service Corps of Retired Executives (SCORE).
• Your problem is causing financial difficulty for you, SCORE provides small business counseling and training
your family, or your business; to current and prospective small business owners.
• You face (or your business is facing) an immediate SCORE is made up of current and former business people
threat of adverse action; or who offer their expertise and knowledge to help people
start, manage, and expand a small business. SCORE also
• You’ve tried repeatedly to contact the IRS but no one
offers a variety of small business workshops.
has responded, or the IRS hasn’t responded by the
date promised. Internet. You can visit the SBA website at SBA.gov.
While visiting the SBA website, you can find a variety of
How Can You Reach TAS? information of interest to small business owners.

TAS has offices in every state, the District of Columbia, Phone. Call the SBA Answer Desk at 800-U-ASK-SBA
and Puerto Rico. Your local advocate’s number is in your (800-827-5722) for general information about programs
local directory and at TaxpayerAdvocate.IRS.gov/ available to assist small business owners.
Contact-Us. You can also call them at 877-777-4778.
Walk-in. You can walk in to an SBDC to request assis-
How Else Does TAS Help Taxpayers? tance with your small business. To find the location near-
est you, visit the SBA website or call the SBA Answer
TAS works to resolve large-scale problems that affect Desk.
many taxpayers. If you know of one of these broad issues,
report it to them at IRS.gov/SAMS.
Other Federal Agencies
TAS for Tax Professionals
Other federal agencies also publish publications and pam-
TAS can provide a variety of information for tax professio- phlets to assist small businesses. Most of these are avail-
nals, including tax law updates and guidance, TAS pro- able from the Superintendent of Documents at the U.S.
grams, and ways to let TAS know about systemic prob- Government Publishing Office. You can get information
lems you’ve seen in your practice. and order these publications and pamphlets in several
ways.

Low Income Taxpayer Clinics (LITCs) Internet. You can visit the GPO website at
Catalog.GPO.gov.
LITCs are independent from the IRS. LITCs represent in-
dividuals whose income is below a certain level and need Mail. Write to the GPO at the following address.
to resolve tax problems with the IRS, such as audits, ap-
peals, and tax collection disputes. In addition, LITCs can Superintendent of Documents
provide information about taxpayer rights and responsibili- U.S. Government Publishing Office
ties in different languages for individuals who speak Eng- P.O. Box 979050
lish as a second language. Services are offered for free or St. Louis, MO 63917-9000
a small fee for eligible taxpayers. To find an LITC near
you, go to TaxpayerAdvocate.IRS.gov/about-us/Low- Phone. Call the GPO toll free at 866-512-1800 or at
Income-Taxpayer-Clinics-LITC or see IRS Pub. 4134, Low 202-512-1800 from the Washington, DC, area.
Income Taxpayer Clinic List.

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                  To help us develop a more useful index, please let us know if you have ideas for index entries.
Index             See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                    Construction allowances    24          Accounting methods        13
A                                   Cost of goods sold   27                Accounting periods   12
Accounting method:                  Credit:                                Barter  20
 Accrual 14 31,                      Alternative fuel vehicle refueling    Basis  17
 Automatic procedures   16              property   18                      Business bad debt    31
 Cash  13 31,                        Alternative motor vehicle 18          Calendar tax year   12
 Change in  16                       Biodiesel and renewable diesel        Cash discount    26 28, 
 Combination  15                        fuels credit 19                    Disposition of property   17
 Special 16                          Biofuel producer credit  19           Drawing account     28
Accounting periods   12              Carbon oxide sequestration    19      Fair market value   18
Accrual method:                      Credit for employer differential      Fiscal tax year  13
                                        wage payments    19
 Income - general rule 14                                                  Fringe benefit 34
                                     Credit for increasing research 
 Income - special rules 14                                                 Local transportation expenses                   31
                                        activities 19
 Of accounting  14                                                         Necessary expense     30
                                     Disabled access    19
Adjusted basis 17                                                          Net operating loss  40
                                     Distilled spirits 19
Administrator 25                                                           Nonbusiness bad debt      31
                                     Employer credit for family and 
Alternative fuel vehicle refueling      medical leave   19                 Ordinary expense    30
 property credit  18                                                       Principal place of business                   38
                                     Employer-provided childcare   19
Alternative motor vehicle credit 18                                        Qualified long-term real 
                                     Empowerment zone employment 
Appeal rights 45                        credit 19                          property     25
Appreciation 24                      Energy efficient home credit  19      Qualified real property business 
                                                                           debt    23
Assistance (See Tax help)            How to claim  20
                                                                           Rent   36
Audits 44                            Indian coal   19
                                                                           Restricted property  23
Automobile (See Car expenses)        Investment    19
                                                                           Retail space 25
                                     Low sulfur diesel fuel 
B                                       production   19                    Self-employment (SE) tax                      9
Bad debts 31                         Low-income housing     19             Tax home  31
Barter income 20                     New markets     19                    Trade discount   27 28, 
Basis of property 17                 Orphan drug   19                      Travel expenses   37
Biodiesel and renewable diesel       Qualified plug-in electric drive     Depreciation:
 fuels credit 19                        motor vehicle  19                  Deduction    32
Biofuel producer credit 19           Qualified railroad track              Listed property  33
Bribes 39                               maintenance credit  19            Depreciation, recapture      24
Business expenses    30              Refined coal  19                     Direct seller 25 26, 
Business income   20                 Renewable electricity  19            Disabled access credit     19
Business use of your home   37       Small employer health insurance      Disposition of property:
                                        premiums   19                      Business property   16
C                                    Small employer pension plan           Installment sale 17 18, 
Canceled debt  22                       startup costs  19                  Like-kind exchange    17 18 25,               , 
Cancellation of qualified real       Taxes paid on certain employee        Nontaxable exchange       17
 property business debt    23           tips 19                            Sale of a business  17
Capital gain or loss 18              Work opportunity credit  20          Distilled spirits credit   19
Car expenses  31 32,                Credit for employer differential      Dividend income   22
                                     wage payments       19
Carbon oxide sequestration                                                Donation of inventory      28
 credit 19                          Credit for increasing research 
                                                                          Drawing account    28
                                     activities 19
Cash discount 26 28,                                                      Due date of return   8
Cash method:                        D
 Expenses   14                                                            E
 Income  13                         Damages  24
                                                                          e-file 7
Charitable contributions 39         De Minimis Safe Harbor for 
                                     Tangible Property    38              Economic injury   24
Child employed by parent   40                                             EFTPS   8
                                    Debt:
Claim for refund  45                                                      Electronic filing 7
                                     Bad  31
Collection of tax 45                                                      Employee  6
                                     Canceled   22
Combination method of                                                     Employee benefit programs                        34
 accounting   15                     Qualified real property business   23
Condemned property   18              Refund offset against  7             Employees' pay    33
Consignments   24                   Definitions 3                         Employer identification number 
                                                                           (EIN)  6

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Employment taxes:                    6252 (installment sale) 18             Gross profit:
  About  10                          720 (excise tax return) 11              Accuracy   30
  Deduction for 36                   8300 (cash payments over                Additions to 30
Empowerment zone employment            $10,000)   11                        Guidelines for selected 
  credit 19                          8586 (low-income housing)       19      occupations    25
Energy efficient home credit   19    8594 (asset acquisition) 17            (See also Occupations, selected)
Entertainment expenses               8820 (orphan drug credit)  19
  (See Travel expenses)              8824 (like-kind exchange)       17 18, H
Escrow, payments placed in     27    8826 (disabled access credit)      19  Home, business use of    37
Estimated tax  8                     8829 (business in home)  38            Hotels, boarding houses, and 
Examinations (audits)  44            8835 (renewable electricity, coal       apartments   21
Excise taxes:                          credit)  19                          Husband and wife business                    3
  About  10                          8846 (credit for social security on 
  Deduction for 37                     tip income)   19                     I
Executor   25                        8857 (innocent spouse)   45            Identification numbers   5
Expenses   30                        8874 (new markets credit)       19     Income   24
  Bad debts 31                       8879 (self-selected PIN) 7             (See also Not income)
  Car 31                             8881 (pension plan startup costs        Accounting for your   26
  Depreciation 32                      credit)  19                           Barter  20
  Employees' pay  33                 8882 (employer-provided childcare       Business  20
  Entertainment 37                     credit)  19                           Damages    24
  Home, business use   37            8886 (transaction statement)     5      Gains and losses 23
  Insurance 34                       8896 (low sulfur diesel fuel            Kickbacks   24
                                       production credit) 19
  Interest 35                                                                Kinds of income  20
                                     8906 (distilled spirits credit) 19
  Legal and professional fees 35                                             Lost income payments    23
                                     8910 (alternative motor vehicle         Other   23
  Meals  37                            credit)  18
                                                                             Paid to a third party 26
  Nondeductible  39                  8911 (alternative fuel vehicle 
  Other 39                             refueling property credit)    18      Personal property rent  22
  Pension plans 35                   8933 (carbon oxide sequestration        Promissory notes 23
  Rent 36                              credit)  19                           Recapture of depreciation                   24
  Taxes  36                          8936 (qualified plug-in electric drive  Recovery of items previously 
  Travel 37                            motor vehicle) 19                     deducted     24
  Truck 31                           8941 (small employer health             Rental  21 22, 
                                       insurance premiums)    19             Restricted property   23
F                                    8994 (employer credit for paid         Income tax:
Fair market value   18                 family and medical leave)      19     About   6
Filing business taxes  5             940 (unemployment tax)   10             Deduction for  36
Fishing crew member    25 40,        941 (quarterly employment tax)     10   How to pay  8
Form:                                944 (annual employment tax)      10     Underpayment penalty    9
  1040 (tax return) 6 10,            982 (discharge of                      Income tax return, who must file                 6
                                       indebtedness)    22
  1040-ES (estimated tax)   8 10,                                           Independent contractor   3 10 40,              , 
                                     Final 12
  1040-SR (tax return) 6 10,                                                Individual taxpayer identification 
                                     Information returns 10                  number (ITIN)  6
  1040-V (voucher)  7
                                     Schedule C (sole proprietor)     10    Information returns 11
  1099-B (barter) 21
                                     Schedule SE (self-employment           Information, How to get more                   45
  1099-MISC (miscellaneous)   11       tax) 9 10,                           Innocent spouse relief   45
  1099-NEC (nonemployee              SS-4 (application for EIN) 6           Installment sales 17
   compensation)    11
                                     SS-5 (application for SSN)      6
  1128 (change tax year)  13                                                Insurance:
                                     W-2 (report wages)  10 11, 
  2210 (underpayment of estimated                                            Expense   34
   tax)  9                           W-3 (transmittal of W-2) 10             Nondeductible premiums                      34
  2290 (excise tax for heavy         W-4 (employee withholding)       6      Prepayment   35
   trucks)  11                       W-7 (application for ITIN) 6            Proceeds   27
  3115 (change accounting            W-9 (request for TIN) 6                Insurance agent:
   method)    16                     When to file  10                        Former   25
  3468 (investment credit) 19        Which to file 10                        Retired  26
  3800 (general business credit)  18 Fringe benefits 34                     Interest:
  4562 (depreciation)  33            Fuel taxes 37                           Expenses   35
  4684 (casualty and theft) 18                                               Income   22
  4797 (sale of business             G                                      Inventories 15
   property)  18 24,                 Gains and losses 23                    Investment credit 19
  4868 (extension)  8                General business credits   18
  6251 (alternative minimum tax)  18

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                                       Public official 26                     Rent expense   36
K                                      Real estate agent  26                  Rental income  21
Kickbacks  24 39,                      Securities dealer  26                  Repayment of income    14
                                       Securities trader  26                  Reportable transaction disclosure 
L                                     Office in the home  31                   statement    5
Lease bonus   21                      (See also Business use of your          Reporting self-employment tax                  44
Lease cancellation payments     21      home)                                 Restricted property  23
Legal fees 35                         Optional methods, using both     43     Retirement plans (See Pension 
Like-kind exchanges    17 25,         Ordinary gain or loss  18                plans)
Limited liability company  3          Orphan drug credit   19
                                                                              S
Listed property 24
                                      P
Lobbying expense   39                                                         Salaries 33
Local transportation expenses    31   Parking fees  32                        Sale of a business  17
Lodging  37                           Partners, husband and wife   3          Sale of property   17
Long-term capital gain or loss   18   Pay, kinds of 33                        (See also Disposition of property)
Lost income payments      23          Paying:                                 Sales of assets 16
Low sulfur diesel fuel production      Business taxes  5                      Sales tax 37
  credit 19                            Income tax  8                          Schedule C  6
Low-income housing credit     19      Payments to third parties  21           Schedule SE (Form 1040 or 
                                      Penalties and fines  39                  1040-SR)   9
M                                     Penalty:                                Schedule SE, filing requirement                44
Meals 37                               Failure to file Form 8300 12           SE tax:
Methods for figuring net               Failure to file information returns 11  About   9
  earnings  41                         Failure to furnish correct payee        Aliens  40
Mileage rate for vehicles  32           statements     11                      Child employed by parent                  40
Motor vehicle, alternative credit  18  Underpayment of tax   9                 Church employee     40
                                       Waiver of  11                           Community property income                   41
N                                     Pension plans    35                      Deduction for 36
Net operating losses   40             Personal property tax  36                Earning credits   9
Net profit or loss 39                 Prepaid expense:                         Effects of using an optional 
New markets credit     19              Extends useful life 35                  method     42
Newspaper carrier or                   Rent  36                                Farm optional method  43
  distributor   26                    Professional fees   35                   Fiscal year filer 44
Newspaper or magazine vendor       26 Promissory notes    23                   Fishing crew member   40
Nonbusiness bad debt      31          Public official 26                       Gain or loss 41
Nondeductible insurance               Publications (See Tax help)              Government employee   41
  premiums  34                        Punitive damages    24                   Joint return 44
Nonemployee compensation        20                                             Lost income payments  41
Nontaxable exchanges      17          Q                                        Maximum earnings:
Not income:                           Qualified plug-in electric drive         For 2020     9
  Appreciation  24                     motor vehicle credit   19               Subject to    40
  Consignments  24                    Qualified railroad track                 Methods for figuring net 
  Constructions allowances   24        maintenance credit    19                earnings     41
  Exchange of like-kind property 25   Qualified real property business         More than one business   41 44, 
  Leasehold improvements     25        debt  23                                Nonfarm optional method                   42
  Loans  25                                                                    Notary public 41
                                      R
  Sales tax 25                                                                 Optional methods:
Not-for-profit activities 40          Real estate:                             Farm     43
Notary public   26 41,                 Agent   26                              Nonfarm      42
                                       Dealer  21                              Rate  40
O                                      Rent  21                                Regular method    42
Occupations, selected:                 Taxes   36                              Residing abroad    41
  Administrator 25                    Recovery of items previously             Special rules and exceptions                40
                                       deducted    24                          Tax rate  9
  Direct seller 25 26, 
                                      Refund:                                  Time limit for posting income               9
  Executor  25
                                       Inquiries 7                             Who must pay?     40
  Fishing crew member  25
                                       Offsets against debts 7                 Why use an optional method                  41
  Insurance agent, former  25
                                      Related persons:                        Section 179:
  Insurance agent, retired 26
                                       Unreasonable rent   36                  Deduction  33
  Newspaper carrier or distributor 26
                                      Renewable electricity, refined coal,     Property  24
  Newspaper or magazine vendor     26  and Indian coal production             Securities:
  Notary public 26                     credit  19                              Dealer  26

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  Trader 26                        Tax preparation fees  35           Real estate 36
Self-employment tax (See SE tax)   Tax refund:                        Sales  37
Settlement payments   22           Claim for   45                     Self-employment   9 36, 
Short-term capital gain or loss 18 Offset against debts  7           Third parties, Payments to                          21
Signature, electronic 7            Tax return:                       Tolls 32
Small Business Administration   49 How to file 6                     Trade discount 27 28, 
Small employer health insurance    Who must file   6                 Trade or business  3
  premiums credit 19               Tax year 12                       Trailer park owner 21
Social security coverage 9         Calendar    12                    Transportation expenses                             31
Social security number (SSN) 6     Change in   13                    Travel expenses 37
Sole proprietor 3 40,              Fiscal 13
Sport utility vehicle 33           Taxes:                            U
Standard mileage rate   32         Deduction for   36                Underpayment of tax penalty                           9
Statutory employee    3            Employment     10 36,             Uniform capitalization rules                          16
SUV 33                             Excise   10 37, 
                                   Fuel   37                         W
T                                  Income   6 36,                    Wages 33
Tax help 45                        Paid on certain employee tips  19 Work opportunity credit  20
Tax home 31 37,                    Personal property  36

Publication 334 (2022)                                                                                                   Page 53

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