State income tax on business income belongs on Schedule A, schedule a, personal itemised deduction.
Why schedule a
State and local tax measured on your net income is a personal itemised deduction on Schedule A, not a Schedule C expense, even when every dollar of that income came from the business. Line 23 covers taxes on the business itself such as property tax, employer payroll tax and license fees, and a tax on your income is not one of those. The practical consequence is that it only helps if you itemise, and it sits under the state and local tax cap with your property tax. A flat franchise or privilege tax for the right to operate is the exception: that is not measured on income and it does go on line 23.
Log it once, with the line already on it. Type an expense in plain words in ClaryBook and it is filed with a date, vendor, amount and what it was for, so the number your preparer needs for state income tax on business income is already written down.
Start for freeWhat state income tax on business income is confused with
- Line 23, taxes and licenses
- A flat state franchise, privilege or gross receipts tax for operating is line 23, while a tax computed on your net income is Schedule A.
- not deductible, not deductible
- If you take the standard deduction, the state income tax gives you nothing, which is different from being a business expense you forgot to claim.
- Schedule 1 line 15, schedule 1 line 15, deductible part of self-employment tax
- The only tax on your own earnings that reduces business related income directly is half of the self employment tax, which is a Schedule 1 adjustment.
Examples that belong on schedule a
- $3,400 of state income tax on $68,000 of Schedule C profit, claimed on Schedule A if you itemise
- $0 entered on Schedule C line 23 for that $3,400
- A $900 state estimated income tax payment, which is a Schedule A item
- An $800 California LLC annual tax, which is not income based and does go on line 23
- A $250 city gross receipts tax, which is also line 23
What does not belong here
- A line 23 deduction for state income tax.
- A line 27a entry labelled state taxes.
- State income tax withheld from employee wages, which is part of line 26 wages.
- A double claim on both Schedule A and Schedule C.
The limit that applies
The Schedule A deduction for state and local taxes is subject to an annual cap set each year, and it is available only if you itemise.
What to keep
Keep the state return and the payment records with your Schedule A support. Keep franchise and gross receipts tax notices in a separate file, because those are the ones that belong on line 23.
Other expenses on schedule a
| Expense | Line |
|---|---|
| a charitable donation | Schedule A |
Related lookups
- Where does a business license go on Schedule C?
- Is a car payment deductible on Schedule C?
- Where does self employment tax go?
Sources
This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.
Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.
Log it once, with the line already on it. Type an expense in plain words in ClaryBook and it is filed with a date, vendor, amount and what it was for, so the number your preparer needs for state income tax on business income is already written down.
Start for free