Massachusetts Business and Professional Income Schedule C Reporting

If you file a federal Schedule C, you are also required to file a Massachusetts Schedule C.

Updated: March 29, 2024

Overview

If you are self-employed, use the federal Schedule C to calculate net profit or loss for a business.

If you have to file a federal Schedule C, you are also required to file a Massachusetts Schedule C. If you have more than 1 business, calculate a Schedule C for each business separately.

You need to file a Schedule C if:

• You're a sole proprietor
• You received a Form 1099-MISC or a Form 1099-K for self-employment income
• You received a Form 1099-NEC for nonemployee compensation
• You received a Form W-2, Wage and Tax Statement as a "Statutory Employee" (oval on Massachusetts Schedule C must be filled in)

Gross receipts to be reported on Schedule C:

• Residents - Report income from all sources, inside and outside of Massachusetts, you received from your business (gross receipts) unless specifically excluded by law
• Part-year residents - Report income from all sources during your residency period
• Nonresidents - Report income from Massachusetts sources. If you earn or get income from sources both within Massachusetts and elsewhere and can't determine the exact amount of Massachusetts source income, apportion your income

Home Office Deduction

If you have an office in your own home, you're allowed a deduction for expenses related to home office use. You may use an optional safe harbor method to figure out the amount of deductible expenses related to certain business use of your home.

The allowable deduction for home office expense is $5 per square foot (maximum of 300 square feet) of qualified home office space used, up to a maximum yearly deduction of $1,500.

Rules for using the safe harbor method:

1. Any actual expenses related to the qualified business use of the home for the taxable year are not deductible.
2. Any disallowed amount carried over from a previous taxable year in which you calculated and substantiated actual expenses is not deductible in the current year.
3. The depreciation deduction allowable for the business part of the home for the taxable year is 0.

By using the safe harbor method, you may deduct certain expenses related to the home (e.g., mortgage interest and real estate taxes) exclusively on your federal Schedule A - Itemized Deductions.

Generally, if you choose to use the safe harbor method of claiming the home office deduction on federal Schedule C (Line 30), you may deduct the same amount on MA Schedule C (Line 29) as "expenses for business use of your home" as long as it doesn't exceed $1,500.

However, like the federal rules, those who elect the safe harbor method can't deduct any part of mortgage interest and real estate taxes for the business use of a residence on their Massachusetts Schedule C, even if they can on their federal Schedule A. Massachusetts law does not allow any federal Schedule A deductions for mortgage interest and real estate taxes.

Calculating Net Profit

	Calculating net profit
	Gross receipts
-	Returns and allowances
-	Cost of goods sold (COGS)
=	Gross profit
-	Business expenses
=	Net profit (or loss, if negative)

Gross receipts (business income) include:

• Cash
• Checks and credit card charges received
• The barter of property or services (fair market value)

Items not considered income:

• Money you borrowed through a bona fide loan
• Appreciation increase in property value (until realized through a sale or taxable disposition)
• Like-kind exchanges (also known as 1031 exchanges)
• Consignment of merchandise to others to sell (until actually sold)

Gross profit is equal to gross receipts minus the following:

• Returns and allowances - If you make or buy goods to sell, you may deduct any returned and/or damaged merchandise you included in your gross receipts. Returns include cash or credit reimbursements the business makes to customers, as well as any other allowances deducted from the actual sales price
• Cost of goods sold (COGS) - If you make or buy goods to sell, you may deduct the cost of goods sold from your gross receipts on Schedule C, calculated on Schedule C-1, Cost of Goods Sold and/or Operations

You can claim the cost of running the business as business expenses. Do not include the cost of goods sold and purchases that need to be capitalized as part of business expenses. To qualify as a valid deduction, business expenses must be both:

• Ordinary (common and accepted in that particular field of business), and
• Necessary (helpful and appropriate for the business)

Gross profit minus business expenses equals net profit or loss. If the expenses are less than income, the difference is net profit. If the expenses are more than income, the difference is a net loss.

Massachusetts does not allow for the federal provisions to either carry back or carry forward any unused net operating loss.

Miscellaneous Information

Both the IRS and Massachusetts allow passive activity losses (PALs) to be carried forward.

Massachusetts S corporations with total receipts of $6 million or more can carry forward net operating losses (NOL), but can't carry back. Losses can be carried forward for no more than 5 years. This is on the S Corporation return.

If you're self-employed, you may deduct on Form 1 (Line 11) or Form 1-NR/PY (Line 15), up to the maximum of $2,000 of self-employment tax you calculated on your U.S. Form SE - Self-Employment Tax, that you paid during the taxable year.

For nonresidents and part-year residents, adjust the self-employment tax related to income you reported on your MA Form 1-NR/PY.

The Schedule C, Line 13 insurance deduction does not include any amounts paid for health insurance.

Reporting on an Original Tax Return

1. Enter the net amount (from MA Schedule C, Line 31 or 33) onto Form 1 (Line 6) or Form 1-NR/PY (Line 8)
2. Enclose MA Schedule C

U.S. Schedule C is no longer allowed as a substitute for MA Schedule C.

Additional Resources

E-file and Pay Your MA Personal Income Taxes