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NJ Income Tax - Business Income


If you have losses in certain business-related categories of income, you may be able to use those losses to calculate an adjustment to your taxable income ("Alternative Business Calculation Adjustment"). In addition, you can carry forward unused losses in those categories for 20 years to calculate future adjustments. For tax year 2013, the percentage used to calculate the Alternative Business Calculation Adjustment on Schedule NJ-BUS-2 is 20 percent, up from 10 percent in tax year 2012. The percentage is being phased in over a five-year period and will reach a maximum of 50 percent for tax year 2016 and after.

Sole Proprietorships

Partnerships

S Corporations


Sole Proprietorships
If you are self-employed, the amount of net income derived from your independent business, trade, or profession must be reported on your New Jersey personal income tax return. Net income is the profit realized from operating your business. It is the amount of business revenues remaining after deducting costs and operating expenses and is calculated using the same accounting method and period used for Federal income tax purposes.

Individual business owners report the net income from the operation of their business in the "Net Profits from Business" section of the NJ-BUS-1, Business Income Summary Schedule. In general, you will enter the same amount that was computed on Federal Schedule C, Schedule C-EZ, or Schedule F and reported on your Federal tax return. However, in order to comply with New Jersey income tax law, it will sometimes be necessary for you to make one or more of the following adjustments to the Federal amount.

  • Add back any amounts you deducted for taxes based on income.
  • Subtract any interest income that was included on Federal Schedule C, C-EZ, or F which is exempt for New Jersey purposes but taxable for Federal purposes.
  • Add any interest income not included on Federal Schedule C, C-EZ, or F from states or political subdivisions outside New Jersey which is exempt for Federal purposes but is taxable for New Jersey purposes.
  • Subtract the portion of meal and entertainment expenses that were disallowed on Federal Schedule C, C-EZ, or F.
  • Subtract qualified contributions to a self-employed 401(k) plan. Contributions to a plan in excess of the Federal limits, which are not an allowable deduction for Federal tax purposes, are also not deductible for New Jersey purposes.
  • Add interest and dividends derived in the conduct of a trade or business.
  • Add or subtract income or losses derived in the conduct of a trade or business from rents, royalties, patents, or copyrights.
  • Add or subtract gains or losses from the sale, exchange, or other disposition of the trade or business's property.
  • Add or subtract the net adjustment from the Gross Income Tax Depreciation Adjustment Worksheet GIT-DEP, Part I, line 7. Be sure to retain the completed worksheet for your records.
  • Subtract the New Jersey domestic production activities deduction from Form 501-GIT.
Sole Proprietors who are engaged in providing "primary care" medical and/or dental services at a qualified practice located in or within five miles of a Health Enterprise Zone (HEZ) may qualify for a deduction on their New Jersey return. For more information, see Technical Bulletin TB-56, Health Enterprise Zones.

A net loss cannot be reported as such on Form NJ-1040. In the case of a net loss on Schedule NJ-BUS-1, make no entry on the line for reporting net profits from business. A copy of Federal Schedule C, C-EZ, or F for each business must accompany the New Jersey return.

Partnerships
If you are a partner in a partnership the amount of net income derived from the partnership must be reported on your New Jersey personal income tax return. While no tax is imposed directly on a partnership itself, every partnership having a New Jersey resident partner or having any income, gain, or loss from New Jersey sources must file a New Jersey Partnership Return, Form NJ-1065.

If you are a partner, you will receive a copy of Schedule NJK-1 that will list your share of the partnership income. You must report all income shown on this schedule in the “Distributive Share of Partnership Income” section of the NJ-BUS-1, Business Income Summary Schedule, whether or not the income was actually distributed. The appropriate amount to report appears on the schedule in Column A of the line labeled "Distributive Share of Partnership Income." If the net amount from all Schedule NJK-1s listed on Schedule NJ-BUS-1 is a loss make no entry on the line for reporting partnership income on your New Jersey personal income tax return. If you did not receive a Schedule NJK-1, you must complete Reconciliation Worksheet A (or Worksheet A - Liquidated) contained in Tax Topic Bulletin GIT-9P, Income From Partnerships, to determine your distributive share of partnership income. You must also enclose with your return a copy of the Federal Schedule K-1 you received from the partnership which did not give you a completed Schedule NJK-1.

Partners in a qualified practice that is engaged in providing "primary care" medical and/or dental services at a location in or within five miles of a Health Enterprise Zone (HEZ) may be eligible for a deduction on their personal income tax return. Partners enter the deduction amount listed on their Schedule NJK-1. For more information, see Technical Bulletin TB-56, Health Enterprise Zones.

A partnership that is not a qualified investment partnership and that is not listed on a United States National stock exchange is required to remit a payment of tax on behalf of all nonresident, noncorporate and nonresident corporate partners. The Division will credit the tax paid by the partnership to the accounts of its nonresident partners as of the date of its receipt. Individual nonresident partners claim credit for any tax paid on their behalf by the partnership when filing Form NJ -1040NR.

S Corporations
If you are a shareholder in a New Jersey S corporation, you will receive a copy of Schedule NJ-K-1 indicating your share of the S corporation's net income. Enter the amount of income shown on this schedule in the “Net pro rata share of S Corporation Income” section of the NJ-BUS-1, Business Income Summary Schedule. All S corporation income is taxed in the year it is earned by the corporation regardless of when it is actually distributed. If the net amount from all Schedule NJ-K-1s listed on Schedule NJ-BUS-1 is a loss make no entry on the line for reporting s corporation income on your New Jersey personal income tax return.

Shareholders in a qualified practice that is engaged in providing "primary care" medical and/or dental services at a location in or within five miles of a Health Enterprise Zone (HEZ) may be eligible for a deduction on their personal income tax return. Shareholders enter the deduction amount listed on their Schedule NJ-K-1. For more information, see Technical Bulletin TB-56, Health Enterprise Zones.

If you are a shareholder in an S corporation which did not elect to be a New Jersey S corporation and which did not give you a completed Schedule NJ-K-1 indicating your share of the corporation's net income, you must complete Reconciliation Worksheet B (or Worksheet B - Liquidated) contained in Tax Topic Bulletin GIT-9S, Income From S Corporations, to determine your share of the corporation's income. You must also enclose with your return a copy of the Federal Schedule K-1 you received from each S corporation which did not give you a completed Schedule NJ-K-1.

Additional Resources
More information concerning reporting income from partnerships and S corporations is available in Tax Topic Bulletins GIT-9P, Income From Partnerships and GIT-9S, Income From S Corporations.

For additional information on business income of proprietors, refer to the section on Net Profits From Business in the New Jersey income tax return instruction booklet, Form NJ-1040.

Order other tax forms.

Last Updated: Wednesday, 08/20/14



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