Some of my tax students were asking me if it was important to get the SIC codes correct on Schedule C forms and I said, absolutely. The IRS (and the respective State taxing agencies, here in California, it is the Franchise Tax Board), use the Standard Industrial Codes or Classifications (I hope I got the definition or names right or SIC codes) to gather statistics about businesses or industries and that way can look at the reasonableness of expenses and income for a particular business.
For example, if a barber were taking a lot of expenses for shaving cream and blade sharpening (let us say he loves to give straight razor shaves), the cream and sharpening stones could be considered expenses. He could depreciate his barber chair and shop as well. The trigger for that would be to get an SIC code as close to haircuts and shaves as possible – maybe something in health, grooming, things like that.
Fortunately, the SIC table is available at the IRS web site and it is good to remember to keep the same SIC code year after year (another reason to have your prior return handy when your tax professional wants to check things out).
You may also have been using the wrong code and the tax pro can help you get the correct one.
Have a great Friday, gang!
Oct 23 2009
Kim Isaac Greenblatt
The Importance of SIC Codes In Taxes
Tags: Business