A principal business code or six-digit number is the key to identifying the type of product or service that you are selling. It’s used to file federal tax returns with IRS, apply for loans with U.S. Small Business Administration (SBA), and for other U.S. government identification purposes.
What is a Principal Business Code?
The IRS determines principal business code of a company is determined by the business activity and the amount of revenue it generates. The U.S. Census Bureau recommends that it be determined by the business’s highest relative percentage of production costs or capital investment, but in practice, it is determined by revenue and employment.
These codes are based upon the North American Industry Classification System (NAICS), developed by the U.S. and Mexican governments. It is updated every five years and was last updated in 2017. 1 3
Alternative name: Code for professional activity
Acronym: PBC
What is a Principal Business Code?
A schedule of the principal business codes (PBCs) is given in the instructions for IRS Schedule C, This is used to report profit or loss in a sole proprietorship, single-member LLC, or in instructions for other tax forms. The NAICS Association website allows you to search for the code.
The PBC’s first two digits represent broad categories like Agriculture, Forestry, and Fishing (11) or Manufacturing (31-33). These categories are listed alphabetically in Schedule C. They are listed numerically on the NAICS website.
Find the best description for your business within a given category. If you have a coffee shop, for example, you’d first look at the Accommodation, Food Services & Drinking Places category. A coffee shop can be described as “the best” The code 722515 is “Snack and non-alcoholic beverages bars”.
How to Get a PBC
PBCs are assigned by government agencies based on the information provided to them by businesses. This means that you have some control over what your PBC will be. The Social Security Administration may assign a PBC to a business owner who requests an Employer Identification Number. A PBC would be assigned by the Census Bureau to any business that responds to a survey. The Bureau of Labor Statistics will assign a PBC to any business that contacts it about unemployment insurance.
SBA establishes size standards for every type of business. These standards are based on average employment or annual receipts. They determine whether a business is eligible for SBA loan guarantees. A builder of single-family homes (236115), for example, would be considered a small business if its annual sales are less than $39.5 million.
Also read: How to Choose Small Business Owner Titles: Top 12 Options
PBC for your Business on Tax Return
All business tax returns must include your business’s PBC. If your business has multiple sources of income, you will only enter the one that is the highest in revenue.
You will need to include both the principal business description as well as the PBC for most business tax returns. Your description should include your category along with a few words that provide more specifics on your customers or clients. The IRS offers two examples: “Wholesale of hardware to retailers” and “Appraisal of real property for lending institutions.”
For sole proprietorships or single-owner LLCs, see Schedule C
- On-Line A, enter the principal business description.
- On-Line B, enter the PBC.
For partnerships and multi-member LLCs, see U.S. Return on Partnership Income (Form 1055)
- On-Line A, enter the principal business description.
- On-Line B, give a brief description of the main product or service.
- Enter the PBC at Line C.
U.S. For C corporations, the Corporation Income Tax Return (Form1120):
- Inscribe the PBC at Schedule K, Line 2a
- On Schedule K, Line 2b, enter the principal business description.
- On Schedule K, Line 2c, enter the service or product description.
U.S. The Income Tax Return for an S Corporation (Form1120-S):
- Enter the PBC on Line B.
- It is not necessary to provide a description of the principal business.
