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Schedule C

The Indiana Department of Revenue reviews Schedule C, federal tax Form 1040, which taxpayers use to report the income or losses of a sole proprietorship. The information from a taxpayer’s federal Schedule C is included as part of the taxpayer’s Indiana tax return.

If it is determined that the business expenses reported on a taxpayer’s federal Schedule C are not permitted in determining federal adjusted gross income according to IRS rules, DOR may make adjustments to the taxpayer’s reported federal adjusted gross income, resulting in additional tax owed to the state of Indiana.

When a taxpayer’s Schedule C has been flagged, DOR may request the following items:

  • A complete copy of the original federal (1040) return(s) and all supporting schedules filed with the IRS
  • All original and amended income statements (e.g., 1099 (MISC, NEC, R, K)), K-1, and/or W-2 or W-2G forms
  • Description of business, including start date
  • Copies (no originals) of documentation supporting the three largest business expense categories, which will include paid invoices/receipts and/or canceled checks
  • Copies (no originals) of documentation supporting all business income, which will include canceled checks or bank statements with the amounts identified

Although these adjustments to items claimed on the federal Schedule C will cause delays in DOR’s processing time, the time may be lessened by providing the items above and sending them through INTIME.

Visit IRS instructions for Schedule C for more information.