Indiana Self-Employed — IT-40 & ES-40 Return

Confirm full-year Indiana residency (required for Form IT-40 vs. IT-40PNR for part-year/nonresidents) and identify the county of residence as of January 1, which determines the Local Income Tax (LIT) rate. Gather the client's federal return or federal AGI, the primary starting point for Indiana tax.

Collect all self-employment income and expenses reported on federal Schedule C. Confirm net profit or loss flowing into federal AGI, which becomes the Indiana starting point. Identify whether multiple Schedule C activities exist and flag any multistate apportionment issues.

Apply Indiana-specific add-backs and subtractions to federal AGI using IT-40 Schedule 1 (add-backs) and Schedule 2 (deductions). Key items for self-employed filers include bonus depreciation add-back, §179 excess add-back, out-of-state bond interest add-back, U.S. government interest subtraction, and Social Security subtraction (if applicable).

Apply personal and dependent exemptions, compute state tax at 2.95% flat rate, and add county Local Income Tax at the client's county rate from DOR Departmental Notice #1. Note that the federal QBI deduction (§199A) does not reduce Indiana taxable income, as Indiana starts from federal AGI before that deduction.

If the client owes $1,000 or more in combined state and county income tax for the current year, quarterly estimated payments are required using Form ES-40. Compute the safe-harbor amount based on prior-year liability or current-year projection, and prepare the four ES-40 vouchers with due dates.

Assemble the complete IT-40 package — federal return copy, all schedules, W-2s and 1099s, and supporting workpapers — and file by the April 15 deadline via INTIME or paper. Confirm any balance due is paid to avoid penalty and interest, and retain copies for the client.