If you are the sole proprietor of your business, when you file your federal income tax return you would generally report your business income and expenses on Schedule C of Form 1040. You may qualify to file the simpler Schedule C-EZ if you have only one small business and you meet the requirements.
If you file Schedule C, you report your principal business or profession on line A, along with an activity code. In the instructions for Schedule C there is a list of activity codes that are based on the North American Industry Classification System. If you operate more than one business, with different activity codes, you would have to file a separate Schedule C for each type of business.
Recordkeeping
According to the IRS, the law does not require you to keep any specific kind of records. But you must have a recordkeeping system that clearly shows your income for the tax year. And you must keep your business records available for inspection by the IRS. If you operate more than one business, you should keep a complete and separate set of records for each business.
Your income and direct expenses for each separate business are generally clear. But you may have some expenses that apply to all your businesses. For example, you may operate different businesses from the same location, or from part of your home. You may have common overhead expenses, such as administrative and office expenses that apply to more than one business. Or you may use an asset, such as a vehicle or office equipment, in more than one business. In these cases you should generally allocate the expenses to the different businesses.
You could allocate the operating expenses of a vehicle used in more than one business based on the miles driven for each business. Then you could either claim the standard mileage rate based on the mileage or allocate your actual expenses proportionately based on the miles driven for each business.
The interest expense on loans or credits you use to finance your businesses are allocated by tracing how the proceeds from the loan or credit are used. Other expenses that apply to more than one business should be allocated on a reasonable basis. This could be the same basis you use for accounting purposes if it accurately reflects your income from each business.
Depreciation
As pointed out in the Business Owner’s Toolkit, when you have more than one business you may have to file a separate Form 4562, Depreciation and Amortization for each business. At the top of each Form 4562 you should write the name of the business to which that form applies. And after completing the separate forms you should complete one master Form 4562 and complete only Part I of that form. This is to summarize your section 179 deductions, if applicable, since the dollar limit on this deduction is per taxpayer and not per business.
Business Use of Your Home
If you qualify to claim a deduction for expenses for business use of your home, you would need to file Form 8829. According to the IRS, you would complete Form 8829 for all your allowable expenses for all the businesses. Then you would allocate the total allowable expenses on line 35 of Form 8829 to line 30 of Schedule C for each business. You can allocate the total using any method that is reasonable under the circumstances.
Sources:
Claiming Your Depreciation Deductions, Business Owner’s Toolkit
Form 4562, Depreciation and Amortization
Form 8829, Expenses for Business Use of Your Home
Instructions for Form 8829, Expenses for Business Use of Your Home
Instructions for Schedule C, Profit or Loss from Business
Publication 583, Starting a Business and Keeping Records, IRS
Schedule C, Profit or Loss from Business
Schedule C-EZ, Net Profit from Business