What this line means
Business-related taxes and license fees you paid during the year. This includes state and local business taxes, sales tax you collected and paid to the state, business license fees, professional license fees, regulatory permit fees, and the employer portion of Social Security and Medicare taxes (if you have employees). Do not include federal income tax, self-employment tax, or state income tax on your personal earnings — those are not business expenses.
Does this apply to you?
- You paid state or local business license fees or renewal fees
- You collected and remitted sales tax to your state
- You paid real estate or personal property tax on business property
- You hold a professional license (cosmetology, real estate, contractor) and paid renewal fees
- You paid payroll taxes as an employer (employer portion of FICA)
Easy to overlook
Professional license and certification fees Annual license renewals, state registration fees, professional association dues required to practice, and certification exam fees are deductible here. A licensed contractor paying $300/year for their state license, a real estate agent paying $200 for their license renewal, or a CPA paying $150 for their state board fee — all deductible on line 23. 1 General filing pattern — missed business license and permit deductions
Sales tax you collect and remit is not income or expense If you collect sales tax from customers and remit it to the state, the sales tax you collected is not included in your gross receipts on line 1, and the sales tax you paid to the state is not a deductible expense on line 23 — it is a pass-through. However, if you report gross receipts including sales tax on line 1, then you deduct the sales tax remitted on line 23 to zero it out. 2 IRS Schedule C instructions — Line 23
Watch out for this
Deducting federal self-employment tax on this line. Self-employment tax (the self-employed equivalent of FICA) is calculated on Schedule SE and half of it is deducted on Schedule 1 of Form 1040 — not on Schedule C. Including it on line 23 double-counts the deduction.
Footnotes
-
IRS Schedule C (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩
-
IRS Schedule C (Form 1040) Instructions, Line 23. https://www.irs.gov/instructions/i1040sc ↩