PA Schedule C - Profit or Loss From Business or Profession (Form and Instructions) (PA-40 C)

OFFICIAL USE ONLY

Include with Form PA-40 or PA-41

Name of owner as shown on PA tax return:

A. Main business activity Product or service

B. Business name

D. Business address (number and street)

City, State, and ZIP Code

E. Method(s) used to value closing inventory. Fill in the appropriate oval:

(1) Cost (2) Lower of cost or market

(3) Other (if other, attach explanation)

F. Accounting method. Fill in the appropriate oval:

(1) Cash (2) Accrual (3) Other (specify) . . . . . . . . . . . . . . . . . . . . . .

Yes No

G. Was there any change in determining quantities, costs, or valuations . . . . . . . . . . . . . . . . . .

between opening and closing inventory? If “Yes,” submit explanation.

H. Did you deduct expenses for an office in your home? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I. If the business is out of existence, fill in this oval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39. Net profit or loss (subtract Line 38 from Line 5).

If a net loss, fill in the oval. Enter the result on your PA tax return. . . . .Loss 39.

1. a. Gross receipts or sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a.

b. Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1b.

c. Balance (subtract Line 1b from Line 1a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1c.

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

3. Gross profit (subtract Line 2 from Line 1c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Other Income (submit statement). Include interest from accounts receivable, business checking

accounts, and other business accounts. Also include sales of operational assets.

. . . . . . . . . . . . . . . 4.

5. Total income (add Lines 3 and 4)

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

Owner’s Social

Security number

C. Federal Employer Identification Number

Federal NAICS Code

Sales Tax License Number (if applicable)

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

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

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

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

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

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

12. Cost depletion but not percentage depletion .

13. a. Regular depreciation . . . . . . . . . . . . . . .

13. b. Section 179 expense . . . . . . . . . . . . . . .

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

15. Employee benefit programs other than on Line 23

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

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

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

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

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

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

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

23. Pension and profit-sharing plans for employees

24. Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

26. Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27. Subcontractor fees . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

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

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

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

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

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

37. Other expenses (specify):

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

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

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

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

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

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

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

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

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

j. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37. Total other expenses . . . . . . . . . . . . . . . . . . . .

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

SIDE 1

INCOME

SECTION I

DEDUCTIONS

SECTION II

PA SCHEDULE C

Profit or Loss from

Business or Profession

(Sole Proprietorship)

PA-40 C (EX) 08-23 (FI)

PA Department of Revenue

2303110056

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

SIDE 2

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

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

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

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

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

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

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

4. Other depreciation:

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

Furniture and fixtures . . .

Transportation equipment

Machinery and other equipment

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

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

1. Inventory at beginning of year (if different from last year’s closing inventory, include explanation) . . . . 1.

2. a. Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2a.

b. Cost of items withdrawn for personal use . . . . . . . . . . . 2b.

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

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

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

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

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

7. Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.

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

Depreciation for this year

(g)

SCHEDULE C-1 - Cost of Goods Sold and/or Operations

Method of calcu-

lating depreciation

(e)

Depreciation allowed or

allowable in prior years

(d)

Cost or other basis

(c)

Date acquired

(b)

Description of property

(a)

Life

or rate

(f)

ttt

Name of owner as shown on PA tax return:

SCHEDULE C- 2 - Depreciation

Social Security Number

Refer to Personal Income Tax Bulletin 2023-02 for information regarding depreciation. Pennsylvania PIT law does not conform to Federal law

to allow federal bonus depreciation. Note, an adjustment for depreciation expense and/or IRC §179 deduction may be required based upon

the treatment of the assets if they differ from federal to Pennsylvania for tax purposes. For assets where basis is different between federal and

PA, you must calculate depreciation expenses on a straight-line basis.

OFFICIAL USE ONLY

PA SCHEDULE C

Profit or Loss from

Business or Profession

(Sole Proprietorship)

PA-40 C (EX) 08-23 (FI)

PA Department of Revenue

2303210054

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PA-40 C

www.revenue.pa.gov

Section 179 Property Deduction - Act 53 of 2022 (Act 2022-

53, P.L. 513, No. 53) amended the PA PIT law to increase

the PA PIT dollar limitation to match the FIT dollar limita-

tion. The amendment applies to § 179 Property placed in

service in tax years beginning on or after January 1, 2023.

Refer to Personal Income Tax Bulletin 2023-02 for further

information.

Use PA Schedule C to report income or loss from a business

you operate or a profession you practice as a sole proprietor.

Your activity qualifies as a business if your primary purpose

for engaging in the activity is income or profit, you conduct

your activity with continuity and regularity, and you satisfy

the “Commercial Enterprise” test. Certain rental activity may

be business income and not rental income. If you are a sole

member of an LLC, complete PA Schedule C.

For additional information regarding the definition of a business

or profession, and for Pennsylvania’s requirements for report-

ing income and expenses, refer to the PA Personal Income

Guide – Net Income or (Loss) from the Operation of a Busi-

ness, Profession, or Farm section for additional information.

NOTE: Pennsylvania determines income and (loss)

under accepted accounting principles, systems, or

practices that are acceptable by standards of the accounting

profession and consistent with regulations of the department.

● You may use any accounting method for PA purposes

as long as you apply your accounting methods consis-

tently, it clearly reflects income, and is not inconsistent

with Pennsylvania law or regulations of the department.

● PA law does not contain provisions for statutory employ-

ees. Federal statutory employees may be required to

report PA taxable income on Line 1a, PA-40, and use

PA Schedule UE to deduct expenses. However, you

may use PA Schedule C to provide the type and amount

of expenses that are included as Miscellaneous

Expenses on PA Schedule UE when there are similar

types of expenses for your occupation or position. In

such cases, the business will report the business name

and activity as “Schedule UE Miscellaneous Expenses”

with zero amounts reported as Gross receipts or sales

and Total income. You must also include “See PA

Schedule C for expenses” on Section III, Line 16 of PA

Schedule UE. If using PA Schedule C to report PA

Schedule UE expense types and amounts, you must

follow PA Schedule UE rules for allowable and unallow-

able expenses. See the PA Personal Income Tax Guide

– Gross Compensation section for more information.

● Unless a loss results from an activity where a net profit

has not been realized in at least two years of a five

consecutive-year period, an owner may deduct all

losses from a business or profession in the taxable year

realized. Report all transactions directly related to your

business or profession on PA Schedule C.

● Do not use the installment method for sales of inventory

if you sell such inventory in the regular and ordinary

course of a business or profession. Include interest on

such sales in gross receipts.

Maintain separate books and records for PA PIT purposes

and file PA Schedule C. Even if you have no differences

between your federal and Pennsylvania expenses, you must

complete and include PA Schedule C to report your income

for Pennsylvania personal income tax purposes.

You may use any accounting method for PA purposes as

long as you apply your accounting methods consistently.

PA law does not have material participation rules. Report

all transactions that are directly related to your business

or profession on your PA Schedule C.

If you own or operate more than one business, you must

submit a separate PA Schedule C for each business operation.

The following federal schedules and instructions do not

apply for PA Schedule C:

SCHEDULE A

You may not deduct nonbusiness-related personal interest,

taxes, and casualty losses on any PA PIT return.

SCHEDULE E

Report rental and royalty income on PA Schedule E unless

engaged in the business of making your property or rights

available in a public market place with intention to realize a

profit.

SCHEDULE F

Report farming activity on PA Schedule F.

SCHEDULE SE

Do not report self-employment taxes to Pennsylvania.

FORM 4562

If using bonus depreciation, do not use Form 4562. Use

Schedule C-2 on Side 2 of this schedule. For § 179 Property

placed in service before 2023, the PA PIT dollar limitation is

based upon earlier of the IRC § 179 dollar limitation at the

time the § 179 Property was placed in service or the IRC §

179 dollar limitation in effect in 2003. The applicable PA PIT

dollar limitations for those years are as follows:

OVERVIEW

IMPORTANT DIFFERENCES BETWEEN

FEDERAL AND PENNSYLVANIA RULES

WHAT’S NEW

Instructions for PA-40 Schedule C

Profit or Loss from Business or Profession

(Sole Proprietorship)

PA-40 C IN (EX) 08-23

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

1997: $18,000

1998: $18,500

1999: $19,000

2000: $20,000

2001-02: $24,000

2003-22: $25,000

Act 53 of 2022 (Act 2022-53, P.L. 513, No. 53) amended

the PA PIT law to increase the PA PIT dollar limitation to

match the FIT dollar limitation. The amendment applies to

§ 179 Property placed in service in tax years beginning

on or after January 1, 2023. Refer to Personal Income Tax

Bulletin 2023-02.

FORM 4684

Report gain or (loss) from all business activity on PA Schedule

C. Include a casualty or theft loss of business property (or

gain, if insurance proceeds exceed the basis of the property

lost or taken) on Line 4 of PA Schedule C. You may refer to

the federal schedule for an explanation of gain or (loss)

items, but do not submit the federal schedule.

FORM 4797

Report other sales, exchanges, and involuntary conversions

of business property on Line 4 of PA Schedule C if the prop-

erty sold was replaced. Refer to the federal schedule for an

explanation of gain/loss items, but do not submit the federal

schedule.

FORM 8271

Do not report or deduct any transactions related to tax

shelters.

FORM 8594

Report the acquisition or disposition of business assets on

Line 4 of PA Schedule C. Refer to the federal schedule for

an explanation for gain/loss items, but do not submit the

federal schedule.

FORM 8824

Do not report a like-kind exchange on PA Schedule C. PA

law does not have like-kind exchange provisions. You must

include the gain or loss from a sale, exchange or disposition

of a business asset on Line 4 of PA Schedule C if the trans-

action was a normal business transaction. You must report

any gain or loss from the sale of a nonbusiness asset or

property or the sale of a business or segment thereof on PA

Schedule D if the property sold was not replaced.

FORM 8829

Include your allowable expenses for the business use of

your home on Line 37 of PA Schedule C. Refer to the federal

schedule for an explanation of this expense, but do not sub-

mit the federal schedule. Pennsylvania does not recognize

the federal safe harbor method for determining the allowable

deduction for business use of a residence for Pennsylvania

Personal Income Tax purposes. All home office expenses

must be determined by using actual costs incurred.

PA income from the operation of business generally differs

from the income determined for federal income tax purposes.

Further, Pennsylvania will no longer accept a PA Schedule

C-F Reconciliation for the purpose of adjusting the federal

business income to PA business income. Therefore, the

items which were previously included as additions to PA

income or expense on the PA Schedule C-F Reconciliation

should be included with the specific line of income or

expense on the PA Schedule C. In addition, those items

which Pennsylvania does not require be reported as income

or does not allow as expense in determining net business

income, which are allowed in the determination of net federal

business income should not be included in the specific

business income or expenses on PA Schedule C.

Examples of items that Pennsylvania requires as additions

to income include: any advance receipts for goods or serv-

ices; working capital interest or dividend income including

federal-exempt interest and dividend income from obliga-

tions of other states; gains from the sale of business assets

where the property is replaced by similar property; gains

from like-kind exchanges; gains from involuntary conver-

sions (such as those from IRC Section 1033); and gains

from the sale of property where PA basis is different than

federal basis.

Examples of items that Pennsylvania allows as additions to

expenses that require a reduction for federal tax purposes

include: meals, travel, and entertainment expense deduction

of 100 percent by Pennsylvania for the expenses incurred;

any differences in depreciation related to differences in basis

of assets, amount of allowable Section 179 expense, or

method of depreciation for federal or PA purposes; and any

other reductions in federal expenses allowed at 100 percent

for PA personal income tax purposes.

Examples of items that Pennsylvania requires as reductions

in federal income or expenses include: income taxes based

upon gross or net income; any differences in depreciation

related to differences in basis of assets, amount of allowable

Section 179 expense, or method of depreciation for federal

or PA purposes; recognition of cancellation of debt income;

recognition of income from IRC Section 481(a) spread

adjustments; payments for owner pension, profit-sharing

plans, deferred, or welfare benefit plans; percentage deple-

tion; direct expensing of organizational expenses or syndi-

cation fees; losses from the sale of property where PA basis

is different than federal basis; and any other income or

expenses where there is a specialized federal treatment that

is not specifically addressed or allowed by PA personal

income tax law that might involve additional expensing,

expensing verses capitalization, carry back or carry forward

of losses, income recognition, or other special treatments.

Other differences between Pennsylvania and federal income

tax include the following:

IDCs. Special rules apply for the direct expensing of intan-

gible drilling & development costs (IDCs). Up to one-third of

the amount of IDCs incurred in tax years beginning after

Dec. 31, 2013 may be directly expensed, with the remaining

amount amortized over 10 years. Taxpayers may also elect

to amortize the full amount of the IDCs over 10 years. The

election to expense any IDCs is made by including an

amount on Line 34 of PA Schedule C. Amortization of the

IDCs must be reported separately on Line 35 of PA Schedule

C. IDCs incurred prior to Jan. 1, 2014 must be amortized

over the life of the well.

OTHER PENNSYLVANIA AND FEDERAL

INCOME TAX DIFFERENCES

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PA-40 C

www.revenue.pa.gov

Qualified Joint Ventures. Pennsylvania is not a community

property state. Therefore, for PA personal income tax

purposes, a taxpayer and the taxpayer’s spouse must each

report on a separate PA Schedule C their share of income

from a business entity they own that is considered a qualified

joint venture for federal income tax purposes.

IDENTIFICATION INFORMATION

Complete each line.

OWNER'S NAME

Enter the name of the business owner. If you are married

and you jointly owned the business with your spouse, you

must complete separate PA Schedule C’s. If you and your

spouse have separate business activities, complete separate

PA Schedule(s) C.

SALES TAX LICENSE NUMBER

Enter your Pennsylvania Sales Tax License Number if you

have one. Otherwise, leave this space blank.

FEDERAL NAICS CODE

Provide your Federal NAICS Code as identified on your

Federal Schedule C.

SOCIAL SECURITY NUMBER (SSN)

Enter the SSN of the business owner.

MAIN BUSINESS ACTIVITY

Describe the business or professional activity that provided

your principal source of income for Line 1. Use the same

description you use for your Federal Schedule C. Enter the

principal business or professional code you use on your

Federal Schedule C.

BUSINESS NAME

Enter the name of the business as you registered with the

IRS.

TAXPAYER IDENTIFICATION NUMBERS

Enter the Federal Employer Identification Number (FEIN)

assigned to the business. If you do not have an FEIN for

your federal Schedule C, leave this space blank.

BUSINESS ADDRESS

Enter the complete address of the business.

CLOSING INVENTORY VALUATION

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

ACCOUNTING METHOD

Fill in the oval for the accounting method you use for this

business. Submit an explanation if necessary.

INVENTORY CHANGES

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

if necessary.

OFFICE IN-HOME

Check “Yes” if you deduct expenses for an office in-home.

Check “No” if you do not deduct expenses for an office

in-home.

OUT OF BUSINESS

If the business is out-of-existence at the end of the tax year

for which you are filing, fill in the oval.

INCOME

Use generally accepted accounting principles and practices

to maintain your books and records, and report your income

from your business or professional activity.

GROSS RECEIPTS OR SALES

Include all amounts you received in operating your business

or profession. PA law does not contain provisions for statutory

employees. A statutory employee reports his or her PA tax-

able income on Line 1a, PA-40, and uses PA Schedule UE

to deduct his or her allowable employee business expenses.

INSTALLMENT SALES

You may use the installment method for sales of inventory.

Include interest on such sales in gross receipts.

LAND AND BUILDINGS

For PA purposes, you may not include the sales of land and

buildings on PA Schedule C unless the property sold is

replaced. When the property sold is not replaced, the

department deems such sales as dispositions of a segment

of a business to be reflected on PA Schedule D.

RETURNS AND ALLOWANCES

This amount is the same for both Pennsylvania and federal

purposes. If you report a different amount for Pennsylvania,

submit an explanation.

COST OF GOODS SOLD

This amount is the same for Pennsylvania and federal pur-

poses. If you report a different amount for Pennsylvania,

submit an explanation.

OTHER INCOME

Enter gross proceeds you may have to report elsewhere on

your federal tax return, including but not limited to:

LINE A

SECTION I

LINE 1a

LINE 1b

LINE 2

LINE B

LINE C

LINE D

LINE E

LINE F

LINE G

LINE H

LINE I

LINE INSTRUCTIONS

LINE 4

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

● The sale of business assets when you reinvest the

proceeds in business operations;

● The gain (loss) on replacing business property, including

land or buildings used in operating your business or

profession; and

● Interest and dividend income from short-term invest-

ments to generate working capital.

Submit a statement explaining the amount you enter. See

various sections of the PA Personal Income Tax Guide for

explanations of allocable interest, dividends and gains to

business or professions. Include other income you enter on

Line 6, Federal Schedule C, but not refunds of federal taxes

and credits you did not deduct for PA purposes.

DEDUCTIONS

Use generally accepted accounting principles and practices

to maintain your books and records and report your expenses

from your business or professional activity. PA law does not

impose dollar or percentage limitations on allowable expenses.

You may deduct 100 percent of the PA allowable business

or professional expenses incurred during the taxable year.

NOTE: You may have incurred other expenses for

entertainment facilities (boat, resort, ranch, etc.), living

accommodations (except for employees on business), or

vacations for yourself, your employees, or their families.

Reduce your total business expenses in Section II by the

total of these personal expenses.

Generally, you may usually use your federal Schedule C

expenses for PA PIT purposes. See the other Pennsylvania

and federal income tax differences explanation beginning on

Page 1 of the instructions for more information.

You may not use federal amounts after making certain elec-

tions to accelerate or defer expenses or spread expenses

over more than one taxable year. These instructions explain

those expense categories where PA PIT rules and federal

rules differ.

AMORTIZATION

Pennsylvania generally follows federal rules. You have the

option to use any amortization method allowable under gen-

erally accepted accounting principles and practices. Include

the amortization of any start-up costs in excess of $5,000 on

this line. Do not include the amortization of IDCs on this line.

See line 35 for IDC amortization.

CAR AND TRUCK EXPENSES

You may deduct 100 percent of your actual vehicle expenses

or you may use the federal standard mileage rate. If you use

the federal standard mileage rate, you may not deduct any

actual operating expenses, including depreciation and lease

costs. Follow the Federal Schedule C rules for these

expenses. If you use your car or truck for both business and

personal travel, you may only deduct the business portion

of your expenses.

REGULAR DEPRECIATION

Use any depreciation method permissible under generally

accepted accounting principles and practices as long as you

consistently apply the method.

NOTE: PA PIT law does not permit any of the bonus

depreciation elections added to the Internal Revenue

Code.

For each asset, you must also report straight-line deprecia-

tion, unless not using an optional accelerated depreciation

method. You need straight-line depreciation to take advan-

tage of Pennsylvania’s Depreciation and Basis Adjustment

rule when you sell the asset. See the PA Personal Income

Tax Guide – Net Gains or Losses from the Sale, Exchange,

or Disposition of Property section for the Depreciation and

Basis Adjustment rule.

Pennsylvania Law requires that taxpayers use straight-line

depreciation if an asset’s basis for determining Pennsylvania

depreciation is different from its basis for federal income tax

purposes.

SECTION 179 EXPENSE

For § 179 Property placed in service before 2023, the PA

PIT dollar limitation is based upon earlier of the IRC § 179

dollar limitation at the time the § 179 Property was placed in

service or the IRC § 179 dollar limitation in effect in 2003.

The applicable PA PIT dollar limitations for those years are

as follows:

1997: $18,000

1998: $18,500

1999: $19,000

2000: $20,000

2001-02: $24,000

2003-22: $25,000

Act 53 of 2022 (Act 2022-53, P.L. 513, No. 53) amended the

PA PIT law to increase the PA PIT dollar limitation to match

the FIT dollar limitation. The amendment applies to § 179

Property placed in service in tax years beginning on or after

January 1, 2023. See Personal Income Tax Bulletin 2023-

02 for additional information.

DUES AND PUBLICATIONS

You may deduct dues and publications, but only to the extent

directly used for ordinary business purposes. You must

exclude any personal use of such expenses.

EMPLOYEE BENEFIT PROGRAMS OTHER THAN ON

LINE 23

You may not deduct any payments you make for your own

personal coverage. Pennsylvania does not allow any

personal expenses on any PA tax return.

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SECTION II

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5PA-40 C www.revenue.pa.gov

INSURANCE

You may deduct life insurance on yourself or your spouse

only if the business is the beneficiary (not your spouse, other

family members, or other persons). The business must use

the insurance proceeds to continue business operations. If

deducting insurance premiums, the proceeds are business

income on Line 4 of Section I.

INTEREST ON BUSINESS INDEBTEDNESS

Deduct interest on business debt only. If you personally

borrow money to acquire a business interest or to improve

your business, you may not deduct the interest on any PA

schedule or PA tax return.

LEGAL AND PROFESSIONAL SERVICES

Only deduct those expenses you incur in operating your

business or profession. You may not deduct any personal

expenses. You may include business accounting and tax

return preparation expenses, but not the costs for personal

accounting and tax returns.

MANAGEMENT FEES

Include any management fees paid in conjunction with the

operation of the business to any related or non-related entity.

PENSION AND PROFIT-SHARING PLANS FOR

EMPLOYEES

Only deduct those expenses directly related to pension and

profit-sharing plans for employees. You may not deduct any

pension or profit-sharing expenses for your own personal

retirement benefits.

RENT ON BUSINESS PROPERTY

Only deduct those expenditures you incurred in the operation

of your business or profession.

SUBCONTRACTOR FEES

Deduct subcontractor fees that were not included in your

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

include any fees paid to payees not included as employees

to whom regular wages were paid.

TAXES

Deduct tax expenses other than taxes based on income. You

may not deduct taxes based on net income, federal income

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

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

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

tance, legacy, succession, or gift taxes. Assessments for

betterments and improvements are not allowed. Business

privilege taxes and/or gross receipts taxes are acceptable

deductions.

TRAVEL AND ENTERTAINMENT

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

your actual travel and entertainment expenses. You may

never deduct the personal portion of your travel and enter-

tainment expenses, whether for yourself, your spouse, your

dependents, or any other person. You must calculate your

expenses using actual expense amounts. You may not use

federal per-diem rates when determining your Pennsylvania

expenses.

UTILITIES

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

when purchased exclusively for residential use, become

subject to sales and use tax when used for commercial

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

or kerosene in your calculation of the business use of your

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

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

online Use Tax Return, or if you are required to file a sales

tax return, as part of that return. Please visit the myPATH

website at mypath.pa.gov to file the Use Tax Return or to

use tax liability on utilities.

WAGES

Do not reduce your wage expense for any federal credits

you claim. Add back any wage expense excluded in order

to claim a federal credit. Do not deduct the costs of your own

participation.

IDCS (1/3 CURRENT EXPENSING)

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

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

Drilling and Development Costs (IDCs) incurred for the tax

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

Informational Notice, Personal Income Tax 2013-04 for

additional information.

IDCS (AMORTIZATION)

Report the amortization expense of IDCs incurred for all tax

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

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

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

may be amortized over 10 years (120 months).

START-UP COSTS (DIRECT EXPENSE)

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

the first year in which the business begins operations for tax

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

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

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

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

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

requires a direct reduction in the direct expense amount. For

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

to be amortized over 180 months. Record only the direct

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

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

PA Schedule C.

OTHER EXPENSES

Deduct any other costs of doing business or providing

professional services if such costs are permitted under

generally accepted accounting principles and practices.

Itemize the additional expenses you claim, and enter the

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

● 100 percent of the PA sales tax paid on a depreciable

business asset. However, on disposition, your Penn-

sylvania basis and federal basis for that asset will be

different.

● Expenses using the capitalization rules established by

your trade, profession, or industry, under its generally

accepted accounting principles and practices. Once

elected, use this method consistently.

● 100 percent of expenses incurred for removing barriers

to individuals with disabilities and the elderly. This is not

a credit but a direct expense in arriving at the net income

or loss.

● Home office expenses. Pennsylvania generally follows

the federal rules for determining the portion of the

expenses for a home office. Pennsylvania does not

follow the federal safe harbor rules for determining the

allowable expense amount. See Line 32, Utilities, for

additional information.

● Any other expenses allowed under generally accepted

accounting principles or financial accounting standards

board rules but are not allowable or limited under federal

rules. Itemize these expenses.

TOTAL EXPENSES

Add Lines 6 through 37.

NET PROFIT OR LOSS

Subtract Line 38 from Line 5. In calculating net profit or loss

from your business or profession, report your entire loss in

this taxable year.

COST OF GOODS SOLD AND/OR OPERATIONS

Generally, if you engaged in a trade or business in which the

production, purchase, or sale of merchandise was an in-

come-producing factor, you must consider inventories at the

beginning and end of your tax year.

In determining inventory value, use the cost, lower of cost

or market, or other method allowable under generally ac-

cepted accounting principles and practices. If you change

methods of valuing inventory, restate the value at the begin-

ning of the year based on the changed method, and include

an explanation. There is no provision under PA PIT law sim-

ilar to IRC Section 481(a) that permits taxpayers to spread

the income effect of a change in method over a specified pe-

riod. PA PIT rules also do not permit valuing inventory using

uniform capitalization rules under IRC section 263 A (a) and

(b) and inventories calculated using this method for federal

purposes must be recalculated for PA PIT purposes.

DEPRECIATION

Complete this schedule if you are using a depreciation

method other than federal depreciation reported on your fed-

eral Schedule C. See the instructions for Line 13 on Page 4.

SCHEDULE C-2

LINE 38

LINE 39

SCHEDULE C-1

LINE 37

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