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PA Schedule C - Part 2- Deductions
Line 4 - Net Profits (Loss) from a Business or Profession
Use 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 always deduct 100 percent of the PA allowable business or professional
expenses that you incurred during the taxable year.
You may have incurred other expenses for an entertainment facility (boat, resort, ranch, etc.), living accommodations (except employees on business) or vacations for yourself, your employees, or their families. You must reduce any of your total Business Expenses in Part II, by the total of these personal expenses. You may usually use your Federal Schedule C expenses for PA PIT purposes. This schedule does not have separate instructions for those lines where PA PIT and federal rules agree.
You may not use federal amounts after making certain elections to accelerate or defer expenses, or spread expenses over more than one taxable year. These instructions explain those expense categories where PA PIT rules and federal rules differ.
Line 7. Amortization. Pennsylvania generally follows federal rules. You have the option to use any amortization method allowable under accepted accounting principles and practices.
Line 10. Car and truck expenses. You may deduct 100 percent of your actual vehicle expenses. You may use the federal standard mileage rate, but 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 purposes, you may only deduct the business portion of your expenses.
Line 13a. Regular Depreciation. You may use any depreciation method that is permissible under accepted accounting principles and practices, but you may not change your method once you select a method. If you are using a depreciation method other than federal depreciation reported on your Federal Schedule C, you should complete PA Depreciation Schedule C-2 and keep it with your records so that it is available upon request.
PA PIT law does not permit the bonus depreciation elections added to the Internal Revenue Code in 2002 and 2003.
For each asset, you must also report straight-line depreciation, unless not using an optional accelerated depreciation method.
You need the amount of straight-line depreciation if you need to take advantage of Pennsylvania ís Tax Benefit Rule when you sell the asset. See the PA PIT Guide for the Tax Benefit Rule.
Line 13b. Section 179 expense. PA PIT law limits IRC Section 179 current expensing to the expensing allowed at the time you placed the asset into service or the expensing in effect under the IRC of 1986 as amended to Jan. 1, 1997. (The maximum deduction that PA Income Tax law permits using IRC Section 179 is $25,000.) Pennsylvania follows the federal definitions for listed property.
Line 14. Dues and publications. You may deduct dues and publications, but only to the extent directly used for ordinary business purposes. You must exclude any personal use of such expenses.
Line 15. Employee benefit programs other than on Line 22. You may not deduct any payments you make for your own personal coverage. Pennsylvania does not allow any personal expenses on any PA tax return.
Line 17. Insurance. You may deduct life insurance on yourself or your spouse only if the business (not your spouse, other family members, or other persons) is the beneficiary. The business must use the insurance proceeds to continue business operations. If deducting insurance premiums, the proceeds are business income on Line 4 of Part I.
Line 18. Interest on business indebtedness. Deduct business interest 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. If the business itself incurs debt, the business may deduct the interest expense.
Line 20. Legal and professional services. You may only deduct those expenses that you incur in operating your business or profession. You may not deduct any personal expenses. You may include business accounting and tax return preparation expenses, but not the costs for personal accounting and tax returns.
Line 23. Pension and profit-sharing plans for employees. You may 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.
Line 25. Rent on business property. For PA PIT purposes, you may only deduct those expenditures that you incur in the operation of your business or profession.
Line 29. Taxes. You may 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 the self-employment taxes that the IRS allows. You may not deduct taxes paid to other states or foreign countries based on income. You may not deduct estate taxes and inheritance, legacy, succession, or gift taxes. Assessments for betterments and improvements are not allowable. Business privilege taxes and/or gross receipts taxes are allowable deductions.
Line 31. Travel and entertainment. PA law does not follow federal law. You may deduct 100 percent of your allowable travel and entertainment expenses. You may never deduct the personal portion (whether for yourself, your spouse, your dependents, or any other person) of your travel and entertainment expenses. You may use the federal standard meal allowance.
Line 33. Wages. You do not have to reduce your wage expense for any federal credits you claim. Add back any wage expense you excluded in order to claim a federal credit. You may not deduct the costs of your own participation.
Line 34. Other expenses. You may deduct any other cost of doing business or providing professional services if such costs are permitted under accepted accounting principles and practices. Itemize the additional expenses you are claiming, and enter the total on Line 34, Total other expenses. You may deduct:
Line 35. Total Expenses. Add Lines 6 through 34.
Line 36. Other business credits. If you claimed one or more of these credits you must reduce your total expenses by your costs to qualify for the credit:
If you did not claim one of these business credits, enter zero on Line 34.
Line 37. Total Adjusted Expenses. Reduce Line 33 by Line 34.
Line 38. Net profit or loss. Subtract Line 35 from Line 5. In computing net profit or loss from your business or profession, you report your entire loss in this taxable year.
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