How to Deduct Taxes on program C, Line 23

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This narrative explains the ins and outs of agenda C, Line 23. It is labeled "Taxes and licenses", but this narrative will focus on just taxes. Sole Proprietors are entitled to deduct distinct types of taxes they incur in their business, so it's prominent that you know what types of taxes are deductible and what types are not deductible.

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How is How to Deduct Taxes on program C, Line 23

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Non-deductible Taxes.
First, the bad news. There are several types of taxes that you do not get to deduct on agenda C. The most distinct is federal revenue tax. So sorry to disappoint you, but that's just the way it is. In fact, you don't get to deduct federal revenue tax in any place on your federal personal revenue tax return.

How about state revenue tax? Well, that is not deductible on agenda C, but it is deductible on agenda A, Itemized Deductions, Line 5. So be sure to narrative it there.

Next comes what is probably the most hated tax of every Sole Proprietor, the dreaded Self-Employment (Se) Tax, which is calculated on agenda Se and reported on Form 1040, Line 57. Well, I've got good news and bad news on this. The bad news is that is it not fully deductible. The good news is that it is partially deductible. One-half of your Se tax is deductible on Form 1040, Line 27. In effect, this 50% deduction reduced your actual Se tax rate a few percentage points below the starting point of 15.3%.

Deductible Taxes.
Ok, how about some good news? There are several taxes that are fully deductible on agenda C, Line 23. Here they are.

State and/or local asset taxes on company assets. This would consist of any real estate taxes you pay on land or other structure used in your business. Also included in this would be personal asset taxes on company assets, along with any personal asset tax on your vehicle (to the extent the vehicle was used for business).

State and/or local sales tax. If you narrative the sales tax collected from customers in your sales total on Line 1, be sure to also narrative it here as an expense. If you don't narrative the sales tax as part of sales, then you don't get to narrative it as an expense.

Payroll taxes. If you have employees and narrative wages on agenda C, Line 26, there are four main payroll taxes you also get to deduct: the employer's share of social protection tax, the employer's share of Medicare tax, federal unemployment tax, and state unemployment tax.

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