IRS Principal Business Codes

The IRS Principal Business Codes, also known as Principal Business Activity Codes, are used by the Internal Revenue Service to categorize businesses to determine their tax obligations. The codes are typically three- or four-digit numbers that designate a specific type of business.

IRS Principal Business Codes Explained

Although there are over 400 specific IRS principal business codes, these codes can group into six major categories: retail and wholesale trade (52), real estate (53-54), construction (55-56), manufacturing (31-33, and other codes related to raw materials processing or assembly of parts into products), services (71-81) and transportation, communications, utilities and other services (other than retail).

The specific code assigned to a business depends on the type of business and how it is organized. For example, a retail store will be given code 5211 (General Line Grocery Merchandise), while a restaurant will be assigned code 5812 (Eating Places). Likewise, a construction company may use 562111 (Residential Remodelers), while a manufacturer might use 333511 (Industrial Machinery Manufacturing).

When filing taxes, businesses must report their principal business code on the Schedule C form. In addition, companies can use these codes to identify potential customers or vendors in their industry and track changes in the overall economic landscape.

What type of businesses qualify as QSBS for these business codes?

Qualified small business stock (QSBS) refers to shares of a domestic C corporation that are acquired at their original issue and held for more than five years. To qualify as QSBS, the company must meet specific criteria set forth by the IRS.

Generally speaking, a business is eligible if it has less than $50 million in assets and is engaged in one of the following activities: manufacturing, engineering, production, extraction, farming, retailing, wholesaling, leasing real or tangible personal property, professional services (such as accounting or law), certain hospitality businesses (hotels and motels), transportation-related activities (including airlines) or any combination of these.

What Business Disqualifies from QSBS?

Several IRS Principal Business Activity Codes disqualify a business from being classified as a Qualified Small Business Stock. These codes are typically three- or four-digit numbers and designate a specific type of business.

The specific code assigned to a business depends on the type of business and how it is organized. For example, a retail store will be given code 5211 (General Line Grocery Merchandise), while a restaurant will be assigned code 5812 (Eating Places). Likewise, a construction company may use 562111 (Residential Remodelers), while a manufacturer might use 333511 (Industrial Machinery Manufacturing).

When filing taxes, businesses must report their principal business code on the Schedule C form. In addition, companies can use these codes to identify potential customers or vendors in their industry and track changes in the overall economic landscape.

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