Business Income Law and Legal Definition
Business income refers to income earned from transactions and activities, including sale of goods and services, performed in the regular course of a taxpayer’s trade or business. Income from tangible and intangible property would also constitute business income if the acquisition, management and disposition of such property forms the integral part of a taxpayer’s regular trade or business. While calculating business income invoices issued by a seller or trader and for which payment is not yet received from the customer are also taken into account. Business income is also called as self employment income, or schedule C income, or sole proprietor income.
Generally, business income is reported in Schedule C by individuals who conduct business as independent contractors or as a sole proprietors. In Schedule C, the individual reports businesses net income including rental income, reports various types of business expenses, and calculates the net profit or loss for the business. This written endorsement can be used to get coverage either on a valued or an actual loss sustained basis. In case where the actual loss sustained option is used the coverage will pay only for the insured's actual loss of income and where the valued option is used the coverage will pay a predetermined amount for each day when the business is interrupted because of an accident to an insured object.
Following is an example of a state statute (Illinois) defining business income. According to 35 ILCS 5/1501 (1), the term “business income” means all income that may be treated as apportionable business income under the Constitution of the United States. Business income is net of the deductions allocable thereto. Such term does not include compensation or the deductions allocable thereto. For each taxable year beginning on or after January 1, 2003, a taxpayer may elect to treat all income other than compensation as business income. This election shall be made in accordance with rules adopted by the Department and, once made, shall be irrevocable.