Official Site of The State of New Jersey

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.

Sole Proprietorships

If you are self-employed, the amount of net income from your business, trade, or profession must be reported on your New Jersey 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. To determine your New Jersey profit or loss, first complete a federal Schedule C (or Schedule C-EZ or F) for each business. Then, make the following adjustments:

• Add any amount you deducted for taxes based on income;
• Subtract interest income you reported on federal Schedule C, C-EZ, or F that is exempt for New Jersey purposes but taxable for federal purposes;
• Add interest income not reported on federal Schedule C, C-EZ, or F from states or political subdivisions outside New Jersey that is exempt for federal purposes;
• Deduct the remaining 50% of meal and entertainment expenses that were not allowed on the federal return;
• Deduct qualified contributions to a self-employed 401(k) Plan. Contributions that exceeded the federal limits are 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;
• Subtract the New Jersey allowable IRC Section 199 deduction from Form 501-GIT , Domestic Production Activities Deduction.

If you are a sole proprietor who provides primary care services in a qualified medical or dental practice you own that is located in or within five miles of a designated Health Enterprise Zone (HEZ), you may be able to deduct a percentage of the net income from that practice on your New Jersey return. For more information, see Technical Bulletin TB-56 , Health Enterprise Zones.

A net loss cannot be reported as such on your New Jersey tax return. If you have a net loss on Schedule NJ-BUS-1, make no entry on the line for reporting net profits from business.

Partnerships

As a partner in a partnership, the amount of net income from the partnership must be reported on your New Jersey 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 income or loss. You must report the income (loss) 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 amount to report appears on Schedule NJK-1 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 Income Tax return. If you did not receive a Schedule NJK-1, you must complete Reconciliation Worksheet A (or Worksheet A - Liquidated) in Tax Topic Bulletin GIT-9P , Income From Partnerships, to determine your distributive share of partnership income.

Partners in a partnership that provides primary care services in a qualified medical or dental practice that is owned by the partnership and that is located in or within five miles of a Health Enterprise Zone (HEZ) may be eligible for a deduction on their Income Tax returns. Partners enter the deduction amount listed on 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 partners 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 or loss. Enter the amount of income (loss) 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 Income Tax return.

Shareholders in an S corporation that provide primary care services in a qualified medical or dental practice they own and that is located in or within five miles of a Health Enterprise Zone (HEZ) may be eligible for a deduction on their 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 that did not elect to be a New Jersey S corporation and that 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.

Additional Resources

Shechtel v. Director, Division of Taxation (32 N.J. Tax 180 2020)

More information is available in Tax Topic Bulletins GIT-9P , Partnership Income and GIT-9S , Income From S Corporations.

For more information on reporting business income, see the instructions for NJ-BUS-1, Business Income Summary Schedule, in the Income Tax return instructions.