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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 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 facilities (boat, resort, ranch, etc.), living accommodations (except employees on business) or vacations for yourself, your employees, or their families. Reduce 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. 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.
Line 10. Car and truck expenses. You may deduct 100 percent of your actual vehicle expenses or you may use the federal standard mileage rate. If you use the federal standard mileage rate, you may not deduct any actual operating expenses, including depreciation and lease costs. Follow the Federal Schedule C rules or these expenses. If you use your car or truck for both business and personal travel, you may only deduct the business portion of your expenses.
Line 13a. Regular Depreciation. Use any depreciation method that is permissible under accepted accounting principles and practices as long as you consistently apply the method.
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 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’s Tax Benefit Rule when you sell the asset. See the PA PIT Guide for the Tax Benefit 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.
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. If
you use Section 179 for federal purposes, you must use Section 179 for
Pennsylvania personal inome tax purposes.
Line 14. Dues and publications. You may deduct dues and publications, but only to the extent directly used for ordinary business purposes. You must exclude any personal use of such expenses.
Line 15. Employee benefit programs other than on Line 23. You may not deduct any payments you make for your own personal coverage. Pennsylvania does not allow any personal expenses on any PA tax return.
Line 17. Insurance. You may deduct life insurance on yourself or your spouse only if the business (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 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.
Line 20. 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.
Line 21. Management Fees. Include any management fees paid in
conjunction with the operation of the business or any related or non-related
Line 23. 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.
Line 25. Rent on business property. Only deduct those expenditures that you incur in the operation of your business or profession.
Line 27. 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.
Line 29. 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 the self-employment taxes that the IRS allows. Do not deduct taxes paid to other states or foreign countries based on income. You may not deduct estate, inheritance, legacy, succession, or gift taxes. Assessments for betterments and improvements are not allowed. Business privilege taxes and/or gross receipts taxes are acceptable deductions.
Line 31. 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 entertainment 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.
Line 32. 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 or the business use of your home, you
should report use tax due on the prorated expense amount on Line 25 of the PA-40
or on the sales tax returns you file with the department.
Line 33. 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. You may not deduct the costs of your own participation.
Line 34. 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 December 31, 2013.
Line 35. IDCs (amortization). Report the amortization expense of IDCs incurred for all tax years on this line. IDCs incurred in tax years beginning prior to January 1, 2014 must be amortized over the life of the well. IDCs incurred in tax years beginning after December 31, 2013 may be amortized over 10 years (120 months).
Line 36. 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 years beginning after
December 31, 2013. The department will follow IRC Section 195(b)(1)(A) regarding
business start-up costs where expenses over $5000 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 January 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.
Line 37. Other expenses. 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 37, Total other expenses. You may deduct:
Line 38. Total expenses. (Add Lines 6 through Line 37)
Line 39. Net profit or loss. (Subtract Line 38 by Line 5)
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