! line 27a. Complete all — Instruction 1040 (Schedule C)

CAUTION B. If you are required to file Schedule SE (Form 1040),

remember to enter one-half of your self-employment tax on Part 1, line 1d, of Worksheet B.

Line 32

TIP

You don’t need to complete line 32 if line 7 is more than the total of lines 28 and 30.

At-risk rules. In most cases, if you have a business loss and amounts invested in the business for which you are not at risk, complete Form 6198 to apply a limitation that may reduce your loss. The at-risk rules generally limit the amount of loss (including loss on the disposition of assets) you can claim to the amount you could actually lose in the business.

Check box 32b if you have amounts invested in this business for which you are not at risk, such as the following.

Nonrecourse loans used to finance the business, to acquire property used in the business, or to acquire the business that are not secured by your own property (other than property used in the business) and which you are not personally responsible to repay. However, there is an exception for certain nonrecourse

financing borrowed by you in connection with holding real property. See the Instructions for Form 6198 and Pub. 925 .

Cash, property, or borrowed amounts used in the business (or contributed to the business or used to acquire the business) that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability).
Amounts borrowed for use in the business from a person who has an interest in the business other than as a creditor or who is related under section 465(b)(3)(C) to a person (other than you) having such an interest.

Figuring your loss. Before determining your loss, check box 32a or 32b to indicate whether the loss from your business activity is limited by the at-risk rules. Follow the instructions next that apply to your box 32 activity.

Note: Line 32 doesn’t apply to filers of Form 1040-SS.

All investment is at risk. If all amounts are at risk in this business, check box 32a. If you answered “Yes” on line G, your loss will not be reduced by the at-risk rules or the passive activity loss rules. See Line 31 , earlier, for how to report your loss.

If you answered “No” on line G, you may need to complete Form 8582 to figure your loss to enter on line 31. See the Instructions for Form 8582 for details.

Some investment is not at risk. If some investment is not at risk, check box 32b; the at-risk rules apply to your loss. Be sure to attach Form 6198 to your return.

If you answered "Yes" on line G, complete Form 6198 to figure the loss to enter on line 31. The passive activity loss rules do not apply. See Line 31 , earlier, for how to report your loss.

If you answered "No" on line G, the passive activity loss rules may apply. First, complete Form 6198 to figure the amount of your profit or (loss) for the at-risk activity, which may include amounts reported on other forms and schedules, and the at-risk amount for the activity. Follow the Instructions for Form 6198 to determine how much of your Schedule C loss will be allowed. After you figure the amount of your loss that is allowed under the at-risk rules, you may need to complete Form 8582 to figure the passive activity loss to enter on line 31. See the Instructions for Form 8582 for details.

year to determine your cost of goods sold in Part III of Schedule C.

Small business taxpayer. You qualify as a small business taxpayer if you (a) have average annual gross receipts of $31 million or less for the 3 prior tax years (indexed for inflation), and (b) are not a tax shelter (as defined in section 448(d)(3)).

If your business has not been in existence for all of the 3-tax-year period used in figuring average gross receipts, base your average on the period it has existed, and if your business has a predecessor entity, include the gross receipts of the predecessor entity from the 3-tax-year period when figuring average gross receipts. If your business (or predecessor entity) had short tax years for any of the 3-tax-year period, annualize your business’s gross receipts for the short tax years that are part of the 3-tax-year period.

See Pub. 538 for more information. Treating inventory as nonincidental material or supplies. If you account for inventories as materials and supplies that are not incidental, you deduct the amounts paid to acquire or produce the inventoriable items (treated as materials and supplies) in the year in which they are first used or consumed in your operations.

Financial accounting treatment of inventories. Your financial accounting treatment of inventories is determined with regard to the method of accounting you use in your applicable financial statement (as defined in section 451(b)(3)) or, if you don’t have an applicable financial statement, with regard to the method of accounting you use in your books and records that have been prepared in accordance with your accounting procedures.

More information. For more information about this exception for small businesses using this method of accounting for inventoriable items, see Pub. 538 .

Changing your method of accounting for inventory. If you want to change your method of accounting for inventory, file Form 3115. For details, see Line F, earlier.