Than One Business?
People who are endowed with an entrepreneurial spirit
generally don't limit their efforts to one business activity.
It's common for business owners to branch out into sideline
activities that may or may not be related to their original
activity, and that might be considered a separate business.
For example, a craft supply retailer might also offer classes
in various types of arts and crafts. Or, a photography studio
might offer photoprocessing of customers' ordinary snapshots, in
addition to traditional professional photography. In each case,
the question arises: is this a single business, or two
businesses that should be reported on two different Schedule Cs?
The tax laws and regulations are not very clear on this
issue, probably because the facts and circumstances can vary so
much from case to case. Generally speaking, if you have two or
more separate business activities, you can't report them both on
the same Schedule C. The instructions to Form 5213, Election
To Postpone Determination as to Whether the Presumption Applies
That an Activity Is Engaged in for Profit, state that in
determining whether you are engaged in more than one activity,
you must consider all of the following:
- the similarity of the activities
- the business purpose that is (or might be) served by
carrying on the activities separately or together in a trade
or business or investment setting, and
- the organizational and economic interrelationship of the
These factors are quite vague and subjective, even for the
IRS. The general idea, however, is that if you provide similar
products or services to similar clients, you have a single
business. If you don't, you may have more than one business
depending on how close the relationship is between the
Other factors that should be considered include which spouse
is the primary operator of the business (for instance, does one
spouse run one activity while the other runs a second?) and the
locations of the businesses (if you have two different but
related businesses that occupy two separate sites, it's more
likely that they should be considered two separate businesses).
If you receive income as a "statutory employee," a
grouping that includes full-time life insurance agents, agent or
commission drivers and traveling salespersons, and certain
homeworkers, you must report this income on a Schedule C. If you
also receive other income as a self-employed person, don't
combine the two types of income - you must file a separate
Schedule C for each type.
One last factor to keep in mind is that the tax law provides
for separate treatment of "passive activities" -
basically, income or losses from a passive activity can only be
offset by income or losses from other passive activities.
Real estate rentals are most often classified as passive
activities which must be reported on Schedule E, Supplemental
Income and Loss, not Schedule C. So, if your "sole
proprietorship" involves some rental or leasing activities,
you may need to treat the income and expense from these
activities as separate passive activities.
Among the Business Tools are Form
E and Form
5213. They are in Adobe Acrobat .pdf format,
and you will need Acrobat Reader 4.0 to view the
files and print them. A free version of Acrobat
4.0 is available in the Business Tools area as