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Department of the Treasury
               Internal Revenue Service

2020 Instructions for Schedule C

   DRAFT AS OF
Profit or Loss
                                             Use Schedule C (Form 1040) to report income or (loss) from a business you operated
                                             or a profession you practiced as a sole proprietor. An activity qualifies as a business if

From Business
                                             your primary purpose for engaging in the activity is for income or profit and you are
                                             involved in the activity with continuity and regularity. For example, a sporadic activi-
                                             ty, not-for-profit activity, or a hobby does not qualify as a business. To report income

  December 2, 2020
                                             from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8.
                                                 Also, use Schedule C to report (a) wages and expenses you had as a statutory em-
                                             ployee, (b) income and deductions of certain qualified joint ventures, and (c) certain
                                             amounts shown on a Form 1099, such as Form 1099-MISC, Form 1099-NEC, and
                                             Form 1099-K. See the instructions on your Form 1099 for more information about
                                             what to report on Schedule C.
                                                 You may be subject to state and local taxes and other requirements such as business
                                             licenses and fees. Check with your state and local governments for more information.

Section references are to the Internal       amounts as “other income” on line 6.           (loss) that is not subject to
Revenue Code unless otherwise noted.         For more information about these cred-         self-employment tax.
                                             its, see Covid-19-Related Tax Credits             • Schedule F (Form 1040) to report
Future Developments                          for Paid Sick and Paid Family Leave:           profit or (loss) from farming.
For the latest information about devel-      Overview.                                         • Schedule J (Form 1040) to figure
opments related to Schedule C and its                                                       your tax by averaging your farming or
instructions, such as legislation enacted    Reminders                                      fishing income over the previous 3
after they were published, go to IRS.gov/                                                   years. Doing so may reduce your tax.
ScheduleC.
                                             Small Business and Self-Employed
                                             (SB/SE) Tax Center. Do you need help
                                                                                               • Schedule SE (Form 1040) to pay
                                                                                            self-employment tax on income from
                                             with a tax issue or preparing your return,
What's New                                   or do you need a free publication or
                                                                                            any trade or business.
                                                                                               • Form 3800 to claim any of the
Standard mileage rate. The business          form? SB/SE serves taxpayers who file          general business credits.
standard mileage rate for 2020 de-           Form 1040, Form 1040-SR, Schedules
                                             C, E, F, or Form 2106, as well as small
                                                                                               • Form 4562 to claim depreciation
creased to 57.5 cents per mile.                                                             (including the special allowance) on
                                             business taxpayers with assets under $10       assets placed in service in 2020, to claim
Excess business loss limitation. The
                                             million. For additional information, visit     amortization that began in 2020, to
excess business loss limitation under
                                             the Small Business and Self-Employed           make an election under section 179 to
section 461(l) has been retroactively re-
                                             Tax Center at IRS.gov/SmallBiz.                expense certain property, or to report
pealed and will not apply for 2020.
                                             Gig Economy Tax Center. The gig (or            information on listed property.
Deductibility of expenses related to
Paycheck Protection Program (PPP)
                                             on-demand, sharing, or access) economy            • Form 4684 to report a casualty or
                                             refers to an activity where people earn        theft gain or (loss) involving property
loan. Certain deductions are not availa-
                                             income providing on-demand work,               used in your trade or business or
ble for a business that received a PPP
                                             services, or goods. Visit IRS.gov/Gig to       income-producing property.
loan if that loan is forgiven or partially
forgiven. For additional information, see
                                             get more information about the tax con-           • Form 4797 to report sales,
                                             sequences of participating in the gig          exchanges, and involuntary conversions
Expenses related to a forgiven Paycheck
                                             economy.                                       (not from a casualty or theft) of trade or
Protection Program (PPP) loan.
                                                                                            business property.
The Families First Coronavirus Re-
sponse Act (FFCRA). From April 1,            General                                           • Form 6198 to apply a limitation to
                                                                                            your loss if you have a business loss and
2020, through December 31, 2020, the         Instructions                                   you have amounts invested in the
FFCRA provides businesses with tax                                                          business for which you are not at risk.
credits to cover certain costs of provid-    Other Schedules and Forms                         • Form 6252 to report income from
ing employees with required paid sick        You May Have To File                           an installment agreement.
leave and expanded family and medical
                                                • Schedule A (Form 1040) to deduct             • Form 7202 to figure a refundable
leave reasons related to the coronavirus.                                                   credit for certain self-employed persons
                                             interest, taxes, and casualty losses not
Under the FFCRA, the amount of these                                                        impacted by the coronavirus.
                                             related to your business.
credits shall be included in the recipient
                                                • Schedule E (Form 1040) to report             • Form 8582 to apply a limitation to
employers’ gross income. Report these                                                       your loss from passive activities.
                                             rental real estate and royalty income or
                                                                C-1
Oct 16, 2020                                               Cat. No. 24329W
• Form 8594 to report certain                Business Owned and                             Making the election. To make this
purchases or sales of groups of assets
                                                 Operated by Spouses                            election, divide all items of income,
that constitute a trade or business.                                                            gain, loss, deduction, and credit attribut-
    • Form 8824 to report like-kind              Generally, if you and your spouse joint-
                                                                                                able to the business between you and
exchanges.                                       ly own and operate an unincorporated
                                                                                                your spouse based on your interests in
    • Form 8829 to claim actual                  business and share in the profits and los-
                                                                                                the business. Each of you must file a
expenses for business use of your home.          ses, you are partners in a partnership,
                                                                                                separate Schedule C or F. Enter your

   DRAFT AS OF
    • Form 8990 to determine whether             whether or not you have a formal part-
                                                                                                share of the applicable income, deduc-
your business interest deduction is              nership agreement. You generally have
                                                                                                tion, or (loss), on the appropriate lines of
limited.                                         to file Form 1065 instead of Schedule C
                                                                                                your separate Schedule C or F. Each of
    • Form 8995 or 8995-A to claim a             for your joint business activity; howev-
                                                                                                you also may need to file a separate
deduction for qualified business income.         er, you may not have to file Form 1065
                                                                                                Schedule SE to pay self-employment
                                                 if either of the following applies.
Single-member limited liability com-                                                            tax. If the business was taxed as a part-

  December 2, 2020
pany (LLC). Generally, a single-mem-                 • You and your spouse elect to be          nership before you made the election,
                                                 treated as a qualified joint venture. See
ber domestic LLC is not treated as a sep-                                                       the partnership will be treated as termi-
                                                 Qualified Joint Venture next.
arate entity for federal income tax                                                             nating at the end of the preceding tax
purposes. If you are the sole member of              • You and your spouse wholly own           year. For information on how to report
                                                 the unincorporated business as commun-
a domestic LLC, file Schedule C (or                                                             the termination of the partnership, see
                                                 ity property and you treat the business as
Schedule E or F, if applicable) unless                                                          Pub. 541.
                                                 a sole proprietorship. See Community
you have elected to treat the domestic                                                          Revoking the election. The election
                                                 Income, later.
LLC as a corporation. See Form 8832                                                             can be revoked only with the permission
                                                 Otherwise, use Form 1065. See Pub. 541
for details on making this election and                                                         of the IRS. However, the election re-
                                                 for information about partnerships.
for information about the tax treatment                                                         mains in effect only for as long as you
of a foreign LLC.                                                                               and your spouse continue to meet the re-
                                                 Qualified Joint Venture
Single-member limited liability com-                                                            quirements to make the election. If you
panies (LLCs) with employees. A sin-             You and your spouse can elect to treat         and your spouse fail to meet the require-
gle-member LLC must file employment              an unincorporated business as a quali-         ments for any year, you will need to
tax returns using the LLC's name and             fied joint venture instead of a partner-       make a new election to be treated as a
employer identification number (EIN)             ship if you:                                   qualified joint venture in any future
rather than the owner's name and EIN,                • Each materially participate in the       year.
even if the LLC is not treated as a sepa-        business (see Material participation, lat-
                                                                                                Employer         identification    number
rate entity for federal income tax purpo-        er, in the instructions for line G),
                                                                                                (EIN). You and your spouse do not
ses.                                                 • Are the only owners of the busi-         need to obtain an EIN to make the elec-
                                                 ness, and
Heavy highway vehicle use tax. If you                                                           tion. But you may need an EIN to file
use certain highway trucks, truck-trail-             • File a joint return for the tax year.    other returns, such as employment or ex-
ers, tractor-trailers, or buses in your              Making the election will allow you to      cise tax returns. To apply for an EIN,
trade or business, you may have to pay a         avoid the complexity of Form 1065, but         see the Instructions for Form SS-4 or
federal highway motor vehicle use tax.           still give each of you credit for social se-   visit IRS.gov/EIN.
See the Instructions for Form 2290 to            curity earnings on which retirement ben-
                                                                                                Rental real estate business. If you and
find out if you must pay this tax and vis-       efits, disability benefits, survivor bene-
                                                                                                your spouse make the election for your
it IRS.gov/Trucker for the most recent           fits, and insurance (Medicare) benefits
                                                                                                rental real estate business, you must
developments.                                    are based. In most cases, this election
                                                                                                each report your share of income and
                                                 will not increase the total tax owed on
Information returns. You may have to                                                            deductions on Schedule E. Rental real
                                                 the joint return.
file information returns for wages paid                                                         estate income generally is not included
to employees, certain payments of fees           Jointly owned property. You and your           in net earnings from self-employment
and other nonemployee compensation,              spouse must operate a business to make         subject to self-employment tax and gen-
interest, rents, royalties, real estate trans-   this election. Do not make the election        erally is subject to the passive loss limi-
actions, annuities, and pensions. See            for jointly owned property that is not a       tation rules. Electing qualified joint ven-
Line I, later, and the 2020 General In-          trade or business.                             ture status does not alter the application
structions for Certain Information Re-                     Only businesses that are owned       of the self-employment tax or the pas-
turns for details and other payments that           !      and operated by spouses as           sive loss limitation rules.
may require you to file a Form 1099.              CAUTION co-owners (and not in the name        More information. For more informa-
    If you received cash of more than            of a state law entity) qualify for the elec-   tion on qualified joint ventures, go to
$10,000 in one or more related transac-          tion. Thus, a business owned and oper-         IRS.gov/QJV.
tions in your trade or business, you may         ated by spouses through a limited liabil-
have to file Form 8300. For details, see         ity company (LLC) does not qualify for         Community Income
Pub. 1544.                                       the election of a qualified joint venture.
                                                                                                If you and your spouse wholly own an
                                                                                                unincorporated business as community

                                                                    C-2
property under the community property        tax year or $4 million in any combina-
laws of a state, foreign country, or U.S.    tion of tax years. (At least $50,000 for a   Line B
possession, you can treat your wholly        single tax year if the loss arose from a     Enter on line B the six-digit code from
owned, unincorporated business as a          foreign currency transaction defined in      the Principal Business or Professional
sole proprietorship, instead of a partner-   section 988(c)(1), whether or not the        Activity Codes chart at the end of these
ship. Any change in your reporting posi-     loss flows through from an S corpora-        instructions.
tion will be treated as a conversion of      tion or partnership.)
                                                                                          Line D

   DRAFT AS OF
the entity.                                     • Certain transactions of interest en-
    Report your income and deductions        tered into after November 1, 2006, that
                                             are the same or substantially similar to     Enter on line D the employer identifica-
as follows.                                                                               tion number (EIN) that was issued to
    • If only one spouse participates in     one of the types of transactions that the
                                             IRS has identified by published guid-        you on Form SS-4. Do not enter your
the business, all of the income from that                                                 SSN on this line. Do not enter another
business is the self-employment earn-        ance as a transaction of interest.

  December 2, 2020
                                                                                          taxpayer's EIN (for example, from any
ings of the spouse who carried on the           See the Instructions for Form 8886        Forms 1099-MISC that you received). If
business.                                    for more details.                            you do not have an EIN, leave line D
    • If both spouses participate, the in-                                                blank.
come and deductions are allocated to the     Capital Construction Fund
spouses based on their distributive          Do not claim on Schedule C the deduc-           You need an EIN only if you have a
shares.                                      tion for amounts contributed to a capital    qualified retirement plan or are required
    • If either or both spouses are part-    construction fund set up under chap-         to file employment, excise, alcohol, to-
ners in a partnership, see Pub. 541.         ter 535 of title 46 of the United States     bacco, or firearms returns, or are a payer
    • If both spouses elected to treat the   Code. Instead, reduce the amount you         of gambling winnings. If you need an
business as a qualifying joint venture,      would otherwise enter on Form 1040 or        EIN, see the Instructions for Form SS-4.
see Qualified Joint Venture, earlier.        1040-SR, line 15, by the amount of the       Single-member LLCs. If you are the
    States with community property laws      deduction. Next to line 15, enter “CCF”      sole owner of an LLC that is not treated
include Arizona, California, Idaho, Lou-     and the amount of the deduction. For de-     as a separate entity for federal income
isiana, Nevada, New Mexico, Texas,           tails, see Pub. 595.                         tax purposes, enter on line D the EIN
Washington, and Wisconsin. See Pub.                                                       that was issued to the LLC (in the LLC's
555 for more information about com-
                                             Additional Information                       legal name) for a qualified retirement
munity property laws.                        See Pub. 334 for more information for        plan, to file employment, excise, alco-
                                             small businesses.                            hol, tobacco, or firearms returns, or as a
Reportable Transaction                                                                    payer of gambling winnings. If you do
Disclosure Statement                                                                      not have such an EIN, leave line D
Use Form 8886 to disclose information        Specific                                     blank.
for each reportable transaction in which
you participated. Form 8886 must be          Instructions                                 Line E
filed for each tax year that your federal    Filers of Form 1041. Do not complete         Enter your business address. Show a
income tax liability is affected by your     the block labeled “Social security num-      street address instead of a box number.
participation in the transaction. You may    ber (SSN).” Instead, enter the employer      Include the suite or room number, if
have to pay a penalty if you are required    identification number (EIN) issued to        any. If you conducted the business from
to file Form 8886 but do not do so. You      the estate or trust on line D.               your home located at the address shown
also may have to pay interest and penal-                                                  on page 1 of your tax return, you do not
ties on any reportable transaction under-
statements. The following are reportable
                                             Line A                                       have to complete this line.
                                             Describe the business or professional ac-
transactions.
    • Any listed transaction that is the     tivity that provided your principal          Line F
same as or substantially similar to tax      source of income reported on line 1. If      Generally, you can use the cash method,
avoidance transactions identified by the     you owned more than one business, you        an accrual method, or any other method
IRS.                                         must complete a separate Schedule C for      permitted by the Internal Revenue Code.
    • Any transaction offered to you or a    each business. Give the general field or     In all cases, the method used must clear-
related party under conditions of confi-     activity and the type of product or serv-    ly reflect income. Unless you are a small
dentiality for which you paid an advisor     ice. If your general field or activity is    business taxpayer (defined later in Part
a fee of at least $50,000.                   wholesale or retail trade, or services       III), you must use an accrual method for
    • Certain transactions for which you     connected with production services           sales and purchases of inventory items.
or a related party have contractual pro-     (mining, construction, or manufactur-        Special rules apply to long-term con-
tection against disallowance of the tax      ing), also give the type of customer or      tracts (see section 460 for details).
benefits.                                    client. For example, “wholesale sale of
                                             hardware to retailers” or “appraisal of         If you use the cash method, show all
    • Certain transactions resulting in a    real estate for lending institutions.”       items of taxable income actually or con-
loss of at least $2 million in any single                                                 structively received during the year (in

                                                               C-3
cash, property, or services). Income is      2019-43) for a list of automatic changes,      can elect to have your business treated
constructively received when it is credi-    including a description of its effect on       as a qualified joint venture instead of a
ted to your account or set aside for you     prior lists of automatic changes. Rev.         partnership (see Qualified Joint Venture,
to use. Also, show amounts actually paid     Proc. 2019-43 is available at                  earlier).
during the year for deductible expenses.     IRS.gov/irb/2019-48_IRB#RP-2019-43.                For purposes of the passive activity
However, if the payment of an expendi-                                                      rules, you materially participated in the
ture creates an asset having a useful life   Line G                                         operation of this trade or business activi-

   DRAFT AS OF
that extends beyond 12 months or the                                                        ty during 2020 if you met any of the fol-
                                             If your business activity was not a rental
end of the next taxable year, it may not                                                    lowing seven tests.
                                             activity and you met any of the material
be deductible or may be deductible only
                                             participation tests, explained next, or the        1. You participated in the activity
in part for the year of the payment. See
                                             exception for oil and gas applies, check       for more than 500 hours during the tax
chapter 1 of Pub. 535.
                                             the “Yes” box. Otherwise, check the            year.

  December 2, 2020
   For amounts includible in income and      “No” box. If you check the “No” box,               2. Your participation in the activity
deductible as expense under an accrual       this activity is passive. If you have a loss   for the tax year was substantially all of
method, see Pub. 538.                        from a passive activity, see Limit on los-     the participation in the activity of all in-
                                             ses, later. If you have a profit from the      dividuals (including individuals who did
    To change your accounting method,        rental of property to a nonpassive activi-     not own any interest in the activity) for
you generally must file Form 3115. You       ty, see Recharacterization of Passive In-      the tax year.
also may have to make an adjustment to       come in Pub. 925 to find out how to re-
prevent amounts of income or expense                                                            3. You participated in the activity
                                             port the net income.
from being duplicated or omitted. This                                                      for more than 100 hours during the tax
is called a section 481(a) adjustment.       Material participation. For purposes           year, and you participated at least as
                                             of the seven material participation tests      much as any other person for the tax
   Example. You change to the cash                                                          year. This includes individuals who did
method of accounting and choose to ac-       listed later, participation generally in-
                                             cludes any work you did in connection          not own any interest in the activity.
count for inventoriable items in the same
manner as non-incidental materials and       with an activity if you owned an interest          4. The activity is a significant par-
supplies for the 2020 tax year. You ac-      in the activity at the time you did the        ticipation activity for the tax year, and
crued sales in 2019 for which you re-        work. The capacity in which you did the        you participated in all significant partici-
ceived payment in 2020. You must re-         work does not matter. However, work is         pation activities for more than 500 hours
port those sales in both years as a result   not treated as participation if it is work     during the year. An activity is a “signifi-
of changing your accounting method           that an owner would not customarily do         cant participation activity” if it involves
and must make a section 481(a) adjust-       in the same type of activity and one of        the conduct of a trade or business, you
ment to prevent duplication of income.       your main reasons for doing the work           participated in the activity for more than
                                             was to avoid the disallowance of losses        100 hours during the tax year, and you
   A net negative section 481 adjust-        or credits from the activity under the         did not materially participate under any
ment is generally taken into account in      passive activity rules.                        of the material participation tests (other
the year of change. A net positive sec-                                                     than this test 4).
tion 481(a) adjustment is generally taken        Work you did as an investor in an ac-
into account over a period of 4 years. In-   tivity is not treated as participation un-         5. You materially participated in the
clude any net positive section 481(a) ad-    less you were directly involved in the         activity for any 5 of the prior 10 tax
justments on line 6. If the net section      day-to-day management or operations of         years.
481(a) adjustment is negative, report it     the activity. Work done as an investor             6. The activity is a personal service
in Part V.                                   includes:                                      activity in which you materially partici-
More information. For more informa-
                                                 • Studying and reviewing financial         pated for any 3 prior tax years. A per-
                                             statements or reports on the activity,         sonal service activity is an activity that
tion about changing your accounting
method and the section 481(a) adjust-
                                                 • Preparing or compiling summaries         involves performing personal services in
                                             or analyses of the finances or operations      the fields of health, law, engineering, ar-
ment, see the Instructions for Form          of the activity for your own use, and
3115. Additional information also is                                                        chitecture, accounting, actuarial science,
available in various revenue procedures.
                                                 • Monitoring the finances or opera-        performing arts, consulting, or any other
                                             tions of the activity in a nonmanagerial       trade or business in which capital is not
See Rev. Proc. 2015-13 (and any subse-       capacity.
quent revenue procedures modifying                                                          a material income-producing factor.
Rev. Proc. 2015-13) for the general pro-         Participation by your spouse during            7. Based on all the facts and circum-
cedures to obtain the advance (non-auto-     the tax year in an activity you own can        stances, you participated in the activity
matic) consent or automatic consent of       be counted as your participation in the        on a regular, continuous, and substantial
the Commissioner to change a method          activity. This rule applies even if your       basis for more than 100 hours during the
of accounting. Rev. Proc. 2015-13 is         spouse did not own an interest in the ac-      tax year.Your participation in managing
available          at        IRS.gov/irb/    tivity and whether or not you and your         the activity does not count in determin-
2015-5_IRB#RP-2015-13. See Rev.              spouse file a joint return. However, this      ing if you meet this test if any person
Proc. 2019-43 (and any subsequent reve-      rule does not apply for purposes of de-        (except you) (a) received compensation
nue procedures modifying Rev. Proc.          termining whether you and your spouse          for performing management services in

                                                                C-4
connection with the activity, or (b) spent     ties, and pensions. You also may have to               Income you report on Sched-
more hours during the tax year than you        file an information return if you sold         TIP ule C may be qualified business
spent performing management services           $5,000 or more of consumer products to                 income and entitle you to a de-
in connection with the activity (regard-       a person on a buy-sell, deposit-commis-       duction on Form 1040 or 1040-SR,
less of whether the person was compen-         sion, or other similar basis for resale.      line 13.
sated for the services).                                The Guide to Information Re-
                                                TIP turns in the 2020 General In-            Line 1

   DRAFT AS OF
Rental of personal property. General-
ly, a rental activity (such as long-term                structions for Certain Informa-
                                                                                             Enter gross receipts from your trade or
equipment leasing) is a passive activity       tion Returns identifies which Forms
                                                                                             business. Be sure to check any Forms
even if you materially participated in the     1099 must be filed, the amounts to re-
                                                                                             1099 you received for business income
activity. However, if you met any of the       port, and the due dates for the required
                                                                                             that must be reported on this line.
five exceptions listed under Rental Ac-        Forms 1099.

  December 2, 2020
tivities in the Instructions for Form                                                           If you received one or more Forms
8582, the rental of the property is not                                                      1099-NEC, be sure line 1 includes

                                               Part I. Income
treated as a rental activity and the mate-                                                   amounts properly shown on your Forms
rial participation rules explained earlier                                                   1099-NEC. If the total amounts that
apply.                                                                                       were reported in box 1 of Forms
                                               Except as otherwise provided in the In-
                                                                                             1099-NEC are more than the total you
Exception for oil and gas. If you are          ternal Revenue Code, gross income in-
                                                                                             are reporting on line 1, attach a state-
filing Schedule C to report income and         cludes income from whatever source de-
                                                                                             ment explaining the difference.
deductions from an oil or gas well in          rived. In certain circumstances, howev-
which you own a working interest di-           er, gross income does not include extra-      Statutory employees. If you received a
rectly or through an entity that does not      territorial income that is qualifying for-    Form W-2 and the "Statutory employee"
limit your liability, check the “Yes” box.     eign trade income. Use Form 8873 to           box in box 13 of that form was checked,
The activity of owning a working inter-        figure the extraterritorial income exclu-     report your income and expenses related
est is not a passive activity, regardless of   sion. Report it on Schedule C as ex-          to that income on Schedule C. Enter
your participation.                            plained in the Instructions for Form          your statutory employee income from
                                               8873.                                         box 1 of Form W-2 on line 1 of Sched-
Limit on losses. Your business activity
                                                                                             ule C and check the box on that line. So-
loss may be limited if you checked the            If you were a debtor in a chapter 11       cial security and Medicare tax should
“No” box on line G. In addition, your          bankruptcy case during 2020, see Chap-        have been withheld from your earnings;
rental activity loss may be limited even       ter 11 Bankruptcy Cases in the Instruc-       as a result, you do not owe self-employ-
if you materially participated. In gener-      tions for Forms 1040 and 1040-SR (un-         ment tax on these earnings. Statutory
al, a business activity in which you do        der Income) and the Instructions for          employees include full-time life insur-
not materially participate or a rental ac-     Schedule SE.                                  ance agents, certain agent or commis-
tivity is a passive activity and you have
                                                   Be sure to report all income attributa-   sion drivers and traveling salespersons,
to use Form 8582 to apply a limitation
                                               ble to your trade or business from all        and certain homeworkers.
that may reduce the loss, if any, that you
may enter on Schedule C, line 31. For          sources. You may receive one or more             If you had both self-employment in-
details, see Pub. 925.                         Forms 1099 from people who are re-            come and statutory employee income,
                                               quired to provide information to the IRS      you must file two Schedules C. You
Line H                                         listing amounts that may be income you
                                               received as a result of your trade or busi-
                                                                                             cannot combine these amounts on a sin-
                                                                                             gle Schedule C.
If you started or acquired this business       ness activities. The following is a list of
in 2020, check the box on line H. Also,                                                               Qualified joint ventures should
                                               some of the common Forms 1099.
check the box if you are reopening or re-          • 1099-MISC. For more information            !     report rental real estate income
                                                                                              CAUTION not subject to self-employment
starting this business after temporarily       about what is being reported on Form
closing it, and you did not file a 2019                                                      tax on Schedule E. See Qualified Joint
                                               1099-MISC, see the Instructions for Re-       Venture, earlier, and the Instructions for
Schedule C for this business.                  cipient included on that form.                Schedule E.
                                                   • 1099-NEC. For more information
Line I                                         about what is being reported on Form
                                                                                             Installment sales. Generally, the in-
If you made any payment in 2020 that           1099-NEC, see the Instructions for Re-
                                                                                             stallment method cannot be used to re-
would require you to file any Forms            cipient included on that form.
                                                                                             port income from the sale of (a) personal
1099, check the “Yes” box. Otherwise,              • 1099-K. For more information            property regularly sold under the install-
check the “No” box.                            about what is being reported on Form
                                                                                             ment method, or (b) real property held
                                               1099-K, see the Instructions for Payee
                                                                                             for resale to customers. But the install-
   You may have to file information re-        included on that form and visit IRS.gov/
                                                                                             ment method can be used to report in-
turns for wages paid to employees, cer-        Gig.
                                                                                             come from sales of certain residential
tain payments of fees and other nonem-                                                       lots and timeshares if you elect to pay
ployee compensation, interest, rents,                                                        interest on the tax due on that income
royalties, real estate transactions, annui-

                                                                  C-5
after the year of sale. See section 453(l)    employees with required paid sick leave          Exception for a small business tax-
(2)(B) for details. If you make this elec-    and expanded family and medical leave         payer. A small business taxpayer (de-
tion, include the interest in the total on    reasons related to the coronavirus.           fined later in Part III) is not required to
Schedule 2 (Form 1040), line 8. Check                                                       capitalize certain expenses to inventory
                                                  If the business use percentage of any
box c and enter the amount of interest                                                      or other property. See Pub. 538 for more
                                              listed property (defined in Line 13, later)
and “453(l)(3)” on the line next to that                                                    details.
                                              dropped to 50% or less in 2020, report
box.
                                              on this line any recapture of excess de-         Exception for creative property. If

   DRAFT AS OF
   If you use the installment method, at-     preciation, including any section 179 ex-     you are a freelance artist, author, or pho-
tach a statement to your return. Show         pense deduction. Use Part IV of Form          tographer, you may be exempt from the
separately for 2020 and the 3 preceding       4797 to figure the recapture. Also, if the    capitalization rules. However, your per-
years: gross sales, cost of goods sold,       business use percentage drops to 50% or       sonal efforts must have created (or rea-
gross profit, percentage of gross profit to   less on leased listed property (other than    sonably be expected to create) the prop-
gross sales, amounts collected, and gross

  December 2, 2020
                                              a vehicle), include on this line any inclu-   erty. This exception does not apply to
profit on amounts collected.                  sion amount. See chapter 5 of Pub. 946        any expense related to printing, photo-
                                              to figure the amount.                         graphic plates, motion picture films, vid-
Line 2                                                                                      eo tapes, or similar items. These expen-
Report your sales returns and allowan-                                                      ses are subject to the capitalization rules.
ces as a positive number on line 2. A         Part II. Expenses                             For details, see Uniform Capitalization
                                                                                            Rules in Pub. 538.
sales return is a cash or credit refund
you gave to customers who returned de-        Expenses related to a forgiven Pay-
fective, damaged, or unwanted products.       check Protection Program (PPP) loan.          Line 9
A sales allowance is a reduction in the       If you received a PPP loan under section
                                              7(a)(36) of the Small Business Act, no        You can deduct the actual expenses of
selling price of products, instead of a                                                     operating your car or truck or take the
cash or credit refund.                        deduction is allowed for an expense if
                                              the payment of the expense results in         standard mileage rate. This is true even
                                              forgiveness of all or part of the loan and    if you used your vehicle for hire (such as
Line 6                                        the income associated with the forgive-       a taxicab). You must use actual expen-
Report on line 6 business income not re-      ness is excluded from gross income. Ex-       ses if you used five or more vehicles si-
ported elsewhere in Part I. Be sure to in-    penses that may result in forgiveness of      multaneously in your business (such as
clude amounts from the following.             the loan include:                             in fleet operations). You cannot use ac-
   • Finance reserve income.                                                                tual expenses for a leased vehicle if you
                                                  • Payroll costs,                          previously used the standard mileage
   • Scrap sales.                                 • Certain employee benefits relating      rate for that vehicle.
   • Bad debts you recovered.                 to healthcare,
   • Interest (such as on notes and               • Interest on a mortgage,                    You can take the standard mileage
accounts receivable).                             • Rent,                                   rate for 2020 only if you:
   • State gasoline or fuel tax refunds           • Utilities, and                             • Owned the vehicle and used the
you received in 2020.                             • Interest on any other existing debt.    standard mileage rate for the first year
   • Any amount of credit for biofuel             Reduce the amounts on lines 8             you placed the vehicle in service, or
claimed on line 2 of Form 6478.               through 26 by the amounts you can’t de-          • Leased the vehicle and are using
   • Any amount of credit for biodiesel       duct as a result of a forgiven PPP loan.      the standard mileage rate for the entire
and renewable diesel claimed on line 8        For more information, see Notice              lease period.
of Form 8864.                                 2020-32. Notice 2020-32 is available at
   • Credit for federal tax paid on fuels     IRS.gov/irb/                                     If you take the standard mileage rate:
claimed on your 2019 Form 1040 or             2020-21_IRB#NOT-2020-32.                         • Multiply the number of business
Form 1040-SR.                                                                               miles driven by 57.5 cents, and
   • Prizes and awards related to your        Capitalizing costs of producing prop-            • Add to this amount your parking
trade or business.                            erty and acquiring property for re-           fees and tolls.
   • Amounts you received in your             sale. If you produced real or tangible
                                                                                               Enter the total on line 9. Do not de-
trade or business as shown on Form            personal property or acquired real or
                                                                                            duct depreciation, rent or lease pay-
1099-PATR.                                    personal property for resale, you gener-
                                                                                            ments, or your actual operating expen-
   • Any amount of credit for qualified       ally must capitalize certain expenses in
                                                                                            ses.
sick and family leave wages from              inventory or other property. These ex-
Form(s) 941, lines 11b and 13c, or from       penses include the direct costs of the           If you deduct actual expenses:
Form 944, lines 8b and 10d.                   property and any indirect costs properly         • Include on line 9 the business por-
   • Other kinds of miscellaneous             allocable to that property. Reduce the        tion of expenses for gasoline, oil, re-
business income.                              amounts on lines 8 through 26 and Part        pairs, insurance, license plates, etc., and
   • From April 1, 2020, through              V by amounts capitalized. See Pub. 538           • Show depreciation on line 13 and
December 31, 2020, the FFCRA                  for a discussion of uniform capitaliza-       rent or lease payments on line 20a.
refundable credits for providing              tion rules.
                                                                                               For details, see chapter 4 of Pub. 463.

                                                                 C-6
Information on your vehicle. If you            to your employees; instead, see Line 26,         • Any property used for entertain-
claim any car and truck expenses, you          later.                                        ment or recreational purposes (such as
must provide certain information on the                                                      photographic, phonographic, communi-
                                                  You must file Form 1099-NEC to re-
use of your vehicle by completing one                                                        cation, and video recording equipment).
                                               port contract labor payments of $600 or
of the following.                              more during the year. See the Instruc-            Exception. Listed property does not
   1. Complete Schedule C, Part IV, if         tions for Forms 1099-MISC and                 include photographic, phonographic,
(a) you are claiming the standard mile-        1099-NEC for details.                         communication, or video equipment

   DRAFT AS OF
age rate, you lease your vehicle, or your                                                    used exclusively in your trade or busi-
vehicle is fully depreciated, and (b) you      Line 12                                       ness or at your regular business estab-
are not required to file Form 4562 for                                                       lishment. For purposes of this exception,
                                               Enter your deduction for depletion on
any other reason. If you used more than                                                      a portion of your home is treated as a
                                               this line. If you have timber depletion,
one vehicle during the year, attach a                                                        regular business establishment only if
                                               attach Form T (Timber). See chapter 9

  December 2, 2020
statement with the information requested                                                     that portion meets the requirements un-
                                               of Pub. 535 for details.
in Schedule C, Part IV, for each addi-                                                       der section 280A(c)(1) for deducting ex-
tional vehicle.                                                                              penses for the business use of your
   2. Complete Form 4562, Part V, if           Line 13                                       home.
you are claiming depreciation on your                                                           Recapture. See Line 6, earlier, if the
                                               Depreciation and section 179 expense
vehicle or you are required to file Form                                                     business use percentage of any listed
                                               deduction. Depreciation is the annual
4562 for any other reason (see Line 13,                                                      property dropped to 50% or less in 2020.
                                               deduction allowed to recover the cost or
later).
                                               other basis of business or investment
                                               property having a useful life substantial-    Line 14
Line 10                                        ly beyond the tax year. You also can de-      Deduct contributions to employee bene-
Enter the total commissions and fees for       preciate improvements made to leased          fit programs that are not an incidental
the tax year. Do not include commis-           business property. However, stock in          part of a pension or profit-sharing plan
sions or fees that are capitalized or de-      trade, inventories, and land are not de-      included on line 19. Examples are acci-
ducted elsewhere on your return.               preciable. Depreciation starts when you       dent and health plans, group-term life
                                               first use the property in your business or    insurance, and dependent care assistance
   You must file Form 1099-NEC to re-          for the production of income. It ends         programs. If you made contributions on
port certain commissions and fees of           when you take the property out of serv-       your behalf as a self-employed person to
$600 or more during the year. See the          ice, deduct all your depreciable cost or      a dependent care assistance program,
Instructions for Forms 1099-MISC and           other basis, or no longer use the property    complete Form 2441, Parts I and III, to
1099-NEC for details.                          in your business or for the production of     figure your deductible contributions to
Sales of property. Generally, commis-          income. You also can elect under sec-         that program.
sions and other fees paid to facilitate the    tion 179 to expense part or all of the cost
sale of property must be capitalized.          of certain property you bought in 2020           You cannot deduct contributions you
However, if you are a dealer in property,      for use in your business. See the Instruc-    made on your behalf as a self-employed
enter on line 10 the commissions and           tions for Form 4562 and Pub. 946 to fig-      person for group-term life insurance.
fees you paid to facilitate the sale of that   ure the amount to enter on line 13.              Do not include on line 14 any contri-
property.                                      When to attach Form 4562. You must            butions you made on your behalf as a
Note. A dealer in property is a person         complete and attach Form 4562 only if         self-employed person to an accident and
who regularly sells property in the ordi-      you are claiming:                             health plan. However, you may be able
nary course of their trade or business.            • Depreciation on property placed in      to deduct on Schedule 1 (Form 1040),
   For more information on the capitali-       service during 2020;                          line 16, the amount you paid for health
zation of commissions and fees, see the            • Depreciation on listed property         insurance on behalf of yourself, your
examples under Regulations section             (defined later), regardless of the date it    spouse, and dependents, even if you do
1.263(a)-1(e).                                 was placed in service; or                     not itemize your deductions. See the in-
                                                   • A section 179 expense deduction.        structions for Schedule 1 (Form 1040),
Line 11                                            If you acquired depreciable property      line 16, for details.
Enter the total cost of contract labor for     for the first time in 2020, see Pub. 946.        You must reduce your line 14 deduc-
the tax year. Contract labor includes          Listed property. Listed property gener-       tion by the amount of any credit for
payments to persons you do not treat as        ally includes but is not limited to:          small employer health insurance premi-
employees (for example, independent                • Passenger automobiles weighing          ums determined on Form 8941. See
contractors) for services performed for        6,000 pounds or less;                         Form 8941 and its instructions to deter-
your trade or business. Do not include             • Any other property used for trans-      mine which expenses are eligible for the
contract labor deducted elsewhere on           portation if the nature of the property       credit.
your return, such as contract labor in-        lends itself to personal use, such as mo-
cludible on line 17, 21, 26, or 37. Also,      torcycles, pickup trucks, etc.; and
do not include salaries and wages paid

                                                                  C-7
not receive a Form 1098, enter the inter-         In most cases, you must file the ap-
Line 15                                        est on line 16b.                              plicable form listed below if you main-
Deduct premiums paid for business in-             If you paid more mortgage interest         tain a pension, profit-sharing, or other
surance on line 15. Deduct on line 14          than is shown on Form 1098, see chap-         funded-deferred compensation plan. The
amounts paid for employee accident and         ter 4 of Pub. 535 to find out if you can      filing requirement is not affected by
health insurance. Do not deduct amounts        deduct the additional interest. If you can,   whether or not the plan qualified under
credited to a reserve for self-insurance       include the amount on line 16a. Attach a      the Internal Revenue Code, or whether

   DRAFT AS OF
or premiums paid for a policy that pays        statement to your return explaining the       or not you claim a deduction for the cur-
for your lost earnings due to sickness or      difference and enter “See attached” in        rent tax year. There is a penalty for fail-
disability. For details, see chapter 6 of      the margin next to line 16a.                  ure to timely file these forms.
Pub. 535.                                                                                    Form 5500-EZ. File this form if you
                                                  If you and at least one other person
                                               (other than your spouse if you file a joint   have a one-participant retirement plan
Lines 16a and 16b                                                                            that meets certain requirements. A

  December 2, 2020
                                               return) were liable for and paid interest
                                               on the mortgage and the other person re-      one-participant plan is a plan that covers
Interest allocation rules. The tax treat-
                                               ceived the Form 1098, include your            only you (or you and your spouse).
ment of interest expense differs depend-
ing on its type. For example, home             share of the interest on line 16b. Attach     Form 5500-SF. File this form electron-
mortgage interest and investment inter-        a statement to your return showing the        ically with the Department of Labor (at
est are treated differently. “Interest allo-   name and address of the person who re-        www.efast.dol.gov) if you have a small
cation” rules require you to allocate          ceived the Form 1098. In the margin           plan (fewer than 100 participants in
(classify) your interest expense so it is      next to line 16b, enter “See attached.”       most cases) that meets certain require-
deducted (or capitalized) on the correct          If you paid interest in 2020 that also     ments.
line of your return and receives the right     applies to future years, deduct only the      Form 5500. File this form electronical-
tax treatment. These rules could affect        part that applies to 2020.                    ly with the Department of Labor (at
how much interest you are allowed to                                                         www.efast.dol.gov) for a plan that does
deduct on Schedule C.                          Line 17                                       not meet the requirements for filing
    Generally, you allocate interest ex-                                                     Form 5500-EZ or Form 5500-SF.
                                               Include on this line fees charged by ac-
pense by tracing how the proceeds of the       countants and attorneys that are ordinary        For details, see Pub. 560.
loan were used. See chapter 4 of Pub.          and necessary expenses directly related
535 for details.                               to operating your business.                   Lines 20a and 20b
Limitation on business interest. You                                                         If you rented or leased vehicles, machi-
must file Form 8990 to deduct any inter-          Include fees for tax advice related to
                                               your business and for preparation of the      nery, or equipment, enter on line 20a the
est expenses of this trade or business un-                                                   business portion of your rental cost. But
less you are a small business taxpayer         tax forms related to your business. Also,
                                               include expenses incurred in resolving        if you leased a vehicle for a term of 30
(defined later in Part III) or meet one of                                                   days or more, you may have to reduce
the other filing exceptions listed in the      asserted tax deficiencies related to your
                                               business.                                     your deduction by an amount called the
Instructions for Form 8990.                                                                  inclusion amount. See Leasing a Car in
    If you must file Form 8990, figure            For more information, see Pub. 334         chapter 4 of Pub. 463 to figure this
the limit on your business interest ex-        or 535.                                       amount.
penses on Form 8990 before completing
                                                                                                Enter on line 20b amounts paid to
lines 16a and 16b. Follow the instruc-         Line 18                                       rent or lease other property, such as of-
tions in How to report, later, but report
                                               Include on this line your expenses for        fice space in a building.
the reduced interest on lines 16a and
                                               office supplies and postage.
16b. The interest you can't deduct this
year will carry forward to next year on                                                      Line 21
Form 8990.                                     Line 19                                       Deduct the cost of incidental repairs and
    If you are a small business taxpayer       Enter your deduction for the contribu-        maintenance that do not add to the prop-
or meet one of the other filing excep-         tions you made for the benefit of your        erty's value or appreciably prolong its
tions for Form 8990, follow the instruc-       employees to a pension, profit-sharing,       life. Do not deduct the value of your
tions in How to report, later, and report      or annuity plan (including SEP, SIM-          own labor. Do not deduct amounts spent
all of your deductible interest on lines       PLE, and SARSEP plans described in            to restore or replace property; they must
16a and 16b.                                   Pub. 560). If the plan included you as a      be capitalized.
                                               self-employed person, enter the contri-
How to report. If you have a mortgage
on real property used in your business,
                                               butions made as an employer on your           Line 22
                                               behalf on Schedule 1 (Form 1040),
enter on line 16a the interest you paid                                                      In most cases, you can deduct the cost of
                                               line 15, not on Schedule C.
for 2020 to banks or other financial in-                                                     materials and supplies only to the extent
stitutions for which you received a Form           This deduction may be subject to lim-     you actually consumed and used them in
1098 (or similar statement). If you did        itations. For more information on poten-      your business during the tax year (unless
                                               tial limitations, see Pub. 560.               you deducted them in a prior tax year).

                                                                  C-8
However, if you had incidental materials     Instead, treat these taxes as part of the     dental expenses only if you did not pay
and supplies on hand for which you kept      cost of the property.                         or incur meal expenses on a day you
no inventories or records of use, you can        • State and local sales taxes imposed     were traveling away from your tax
deduct the cost of those you actually        on the buyer that you were required to        home. The amount of the deduction is
purchased during the tax year, provided      collect and pay over to state or local        $5 a day. Incidental expenses include
that method clearly reflects income.         governments. These taxes are not inclu-       fees and tips given to porters, baggage
                                             ded in gross receipts or sales nor are        carriers, bellhops, hotel maids, stewards

   DRAFT AS OF
   You also can deduct the cost of           they a deductible expense. However, if        or stewardesses and others on ships, and
books, professional instruments, equip-      the state or local government allowed         hotel servants in foreign countries. They
ment, etc., if you normally use them         you to retain any part of the sales tax       do not include expenses for laundry,
within a year. However, if their useful-     you collected, you must include that          cleaning and pressing of clothing, lodg-
ness extends substantially beyond a          amount as income on line 6.                   ing taxes, or the costs of telegrams or
year, you must generally recover their           • Other taxes and license fees not re-    telephone calls. You cannot use this

  December 2, 2020
costs through depreciation.                  lated to your business.                       method on any day that you use the
                                                                                           standard meal allowance (as explained
Line 23
                                                     Do not reduce your deduction
                                                                                           in Line 24b, later).
You can deduct the following taxes and
                                                !    for social security and Medi-
                                             CAUTION care taxes by the following
                                                                                              You cannot deduct expenses for at-
licenses on this line.                       amounts claimed on Form 944 or                tending a convention, seminar, or simi-
    • State and local sales taxes imposed    Form(s) 941 for your business employ-         lar meeting held outside the North
on you as the seller of goods or services.   ees:                                          American area unless the meeting is di-
If you collected this tax from the buyer,                                                  rectly related to your trade or business
you also must include the amount col-           (1) The nonrefundable and refunda-         and it is as reasonable for the meeting to
lected in gross receipts or sales on         ble portions of the new CARES Act em-         be held outside the North American area
line 1.                                      ployee retention credit, and                  as within it. These rules apply to both
    • Real estate and personal property         (2) The nonrefundable and refunda-         employers and employees. Other rules
taxes on business assets.
                                             ble portions of the new FFCRA credits         apply to luxury water travel.
    • Licenses and regulatory fees for       for qualified sick and family leave wa-
your trade or business paid each year to                                                      For details on travel expenses, see
state or local governments. But some li-     ges.
                                                                                           chapter 1 of Pub. 463.
censes, such as liquor licenses, may            Instead, item (1) reduces your deduc-
have to be amortized. See chapter 8 of
Pub. 535 for details.
                                             tion for wages on line 26, and item (2)       Line 24b
                                             must be reported as income on line 6.
    • Social security and Medicare taxes                                                   Enter your deductible business meal ex-
                                                                                           penses. This includes expenses for meals
paid to match required withholding from
your employees’ wages. Also, reduce
                                             Line 24a                                      while traveling away from home for
your deduction by the amount shown on        Enter your expenses for lodging and           business. Your deductible business meal
Form 8846, line 4.                           transportation connected with overnight       expenses are a percentage of your actual
    • Federal unemployment tax paid.         travel for business while away from           business meal expenses or standard meal
    • Federal highway use tax.               your tax home. In most cases, your tax        allowance. See Amount of deduction,
    • Contributions to state unemploy-       home is your main place of business, re-      later, for the percentage that applies to
ment insurance fund or disability benefit    gardless of where you maintain your           your actual meal expenses or standard
fund if they are considered taxes under      family home. You cannot deduct expen-         meal allowance. In most cases, the per-
state law.                                   ses paid or incurred in connection with       centage is 50%.
                                             employment away from home if that pe-
   Do not deduct the following.              riod of employment exceeds 1 year. Al-            Do not include entertainment expen-
   • Federal income taxes, including         so, you cannot deduct travel expenses         ses on this line.
your self-employment tax. However,           for your spouse, your dependent, or any       Business meal expenses. You can de-
you can deduct one-half of your self-em-     other individual unless that person is        duct a percentage of the actual cost of a
ployment tax on Schedule 1 (Form             your employee, the travel is for a bona       meal if the following conditions are met.
1040), line 14 (but if filing Form           fide business purpose, and the expenses           • The meal expense was an ordinary
1040-NR, then only when covered under        would otherwise be deductible by that         and necessary expense in carrying on
the U.S. social security system due to an    person.                                       your trade or business;
international social security agreement).
                                                Do not include expenses for meals on           • The expense was not lavish or ex-
   • Estate and gift taxes.                  this line. Instead, see Line 24b, later. Do
                                                                                           travagant under the circumstances;
   • Taxes assessed to pay for improve-      not include entertainment expenses on             • You or your employee was present
ments, such as paving and sewers.                                                          at the meal;
                                             this line.
   • Taxes on your home or personal                                                            • The meal was provided to a cur-
use property.                                   Instead of keeping records of your         rent or potential business customer, cli-
   • State and local sales taxes on prop-    actual incidental expenses, you can use       ent, consultant, or similar business con-
erty purchased for use in your business.     an optional method for deducting inci-        tact; and

                                                                C-9
• In the case of food or beverages            • Certain merchant mariners who are          Do not reduce your deduction for any
provided during or at an entertainment        under Coast Guard regulations.                portion of a credit that was passed
event, the food and beverages were pur-          However, you can fully deduct meals        through to you from a pass-through enti-
chased separately from the entertain-         and incidentals furnished or reimbursed       ty. See the instructions for the credit
ment, or the cost of the food and bever-      to an employee if you properly treat the      form for more information.
ages was stated separately from the cost      expense as wages subject to withhold-           Do not include salaries and wages de-
of the entertainment on one or more           ing. You also can fully deduct meals and      ducted elsewhere on your return or

   DRAFT AS OF
bills, invoices, or receipts.                 incidentals provided to a nonemployee         amounts paid to yourself.
         You cannot avoid the entertain-      to the extent the expenses are includible
                                                                                                     If you provided taxable fringe
                                              in the gross income of that person and
   !     ment disallowance rule by in-
 CAUTION flating the amount charged for       reported on Form 1099-NEC. See Pub.              !     benefits to your employees,
                                                                                            CAUTION such as personal use of a car,
food and beverages.                           535 for details and other exceptions.
                                                                                            do not deduct as wages the amount ap-

  December 2, 2020
                                              Daycare providers. If you qualify as a        plicable to depreciation and other ex-
    See Notice 2018-76 for examples and       family daycare provider, you can use the
more information. Notice 2018-76 is                                                         penses claimed elsewhere.
                                              standard meal and snack rates, instead of
available          at          IRS.gov/irb/   actual costs, to figure the deductible cost      In most cases, you are required to file
2018-42_IRB#NOT-2018-76.                      of meals and snacks provided to eligible      Form W-2, Wage and Tax Statement,
Standard meal allowance. Instead of           children. See Pub. 587 for details, in-       for each employee. See the General In-
deducting the actual cost of your meals       cluding recordkeeping requirements.           structions for Forms W-2 and W-3.
while traveling away from home, you
can use the standard meal allowance for
your daily meals and incidental expen-
                                              Line 25                                       Line 30
ses. Under this method, you deduct a          Deduct utility expenses only for your         Business use of your home. You may
specified amount, depending on where          trade or business.                            be able to deduct certain expenses for
you travel, instead of keeping records of     Local telephone service. If you used          business use of your home, subject to
your actual meal expenses. However,           your home phone for business, do not          limitations. To claim a deduction for
you must still keep records to prove the      deduct the base rate (including taxes) of     business use of your home, you can use
time, place, and business purpose of          the first phone line into your residence.     Form 8829 or you can elect to determine
your travel.                                  But you can deduct any additional costs       the amount of the deduction using a sim-
    The standard meal allowance is the        you incurred for business that are more       plified method.
federal M&IE rate. You can find these         than the base rate of the first phone line.      For additional information about
rates for locations inside and outside the    For example, if you had a second line,        claiming this deduction, see Pub. 587.
continental United States by visiting the     you can deduct the business percentage
                                              of the charges for that line, including the            If you are not using the simpli-
General Services Administration's web-                                                       TIP fied method to determine the
site at www.gsa.gov.                          base rate charges.
                                                                                                     amount of expenses you may
    See chapter 1 of Pub. 463 for details                                                   deduct for business use of a home, do
on how to figure your deduction using         Line 26                                       not complete the additional entry spaces
the standard meal allowance, including        Enter the total salaries and wages for the    on line 30 for total square footage of
special rules for partial days of travel.     tax year reduced by the amount of the         your home and of the part of the home
Amount of deduction. In most cases,           following credit(s), if applicable.           used for business. Just include the
you can deduct only 50% of your busi-            • Work Opportunity Credit (Form            amount from line 36 of your Form 8829
ness meal expenses, including meals in-       5884).                                        on line 30.
curred while away from home on busi-             • Employee Retention Credit (Form          Simplified method. The simplified
ness. However, for individuals subject to     5884-A).
the Department of Transportation (DOT)           • Empowerment Zone Employment              method is an alternative to the calcula-
                                                                                            tion, allocation, and substantiation of ac-
hours of service limits, that percentage      Credit (Form 8844).
is increased to 80% for business meals           • Indian Employment Credit (Form           tual expenses. In most cases, you will
                                                                                            figure your deduction by multiplying the
consumed during, or incident to, any pe-      8845).
riod of duty for which those limits are in       • Credit for Employer Differential         area (measured in square feet) used reg-
                                                                                            ularly and exclusively for business, reg-
effect. Individuals subject to the DOT        Wage Payments (Form 8932).
hours of service limits include the fol-         • Employer Credit for Paid Family          ularly for daycare, or regularly for stor-
                                                                                            age of inventory or product samples, by
lowing.                                       and Medical Leave (Form 8994).
                                                                                            $5. The area you use to figure your de-
    • Certain air transportation workers               Also reduce your deduction by        duction cannot exceed 300 square feet.
(such as pilots, crew, dispatchers, me-
chanics, and control tower operators)
                                                 !     the nonrefundable and refunda-
                                              CAUTION ble portions of the new CARES
                                                                                            You cannot use the simplified method to
                                                                                            figure a deduction for rental use of your
who are under Federal Aviation Admin-         Act employee retention credit claimed         home.
istration regulations.                        on Form 944 or Form(s) 941 for your
    • Interstate truck operators who are      business employee.                               Electing to use the simplified meth-
under DOT regulations.                                                                      od. You choose whether or not to use

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