What Is Principal Business Code And How To Get It In 2021?

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Principal Business Code

If you want to open a venture of your own, you must fulfill the legal and regulatory requirements. It will help you stay clear of the legal trouble that may hamper your business operations in the future. Without a principal business code, your business won’t have any legal registration.

You will indeed be saved from the tax troubles, but not for long. Your business will maybe get convicted for fraudulent activities. Apart from tarnishing your reputation, it will also disrupt the lives of a lot of your employees.

What Is The Principal Business Code?

According to the U.S. government identification purposes, a business must have a principal business code. This is because it will also help the company fill the federal tax profits on behalf of the government. Therefore, you will get the PBC based on the product that generates the most income. 

It’s a 6 digit code number that categorizes the products or services you sell in the industry. Not only the kinds of products but also your industry and your buyer details can be accessed with this code. 

An IRS business code categorizes if your business falls under the sole proprietorship, corporation, or limited liability statute. Once you submit a principal investment, IRS will decide your business activity based on the virtual share of production prices. A principal business code is also called a professional business code.

Also Read: 10 Marketing Topics You Should Know When Opening A Business

What Kinds Of Industries Have A Principal Business Code?

Every business industry has its PBC. But, you must not confuse an industry’s code with your company. There are several codes in the different industry niches, and every company does not have a separate code. If your company falls under the construction sector, the IRS will judge if the business is a trade contractor or a building contractor. So, several companies can have the same PBC if they fall into the same industry niche. Some major industries with their principal business codes are mentioned below;

1: Agriculture

  • Grain farming- 111100
  • Vegetable farming- 111210
  • Fruit farming-1113000
  • Greenhouse-111400
  • Fishing- 114110
  • Hunting-114210

2: Construction

  • Residential building- 236110
  • Non-residential building- 236200
  • Electrical construction- 238210
  • Building exterior construction- 238100
  • Plumbing, air-conditioning, heating- 238220

3: Manufacturing

  • Animal food- 311110
  • Glass product- 327210
  • Soft drinks- 312110
  • Foundries- 331500
  • Apparel mills- 315100
  • Agricultural and construction machinery- 333100
  • Sawmill- 321110
  • Communication equipment- 334200

4: Wholesale

  • Motor vehicle parts- 423100
  • Furniture- 423200
  • Paper product- 424100
  • Grocery product- 424400
  • Farm supplies- 424910
  • Tobacco products- 424940
  • Recyclable materials- 423930
  • Alcoholic beverage- 424800

5: Retail

  • Car dealers- 441110
  • Motorcycle dealers- 441221
  • Boat dealers-441222
  • Family clothing- 448140
  • Jewelry stores- 448310
  • Furniture stores-442110
  • Sports goods- 451110
  • Departmental stores- 452110
  • Hardware stores- 444130

So, we hope you have a little grip over the concept of principal business codes and how they work. There are, of course, several other kinds of businesses too with different principal business codes in each of these industries. 

What Is The Importance Of A Principal Business Code On The Business Economy?

According to the Standard Industrial Classification System, the PBC is the first standard identification system. This identification system is a separate business entity on its own. This system helped other businesses to get registered on the U.S. government’s radar. It helps to find out the business locations for each company. Thus, it was easy for the government to observe the economic activities of each company. 

The business owners must fill the financial model statements that denote their annual profit and loss. It helps the government to check if any of these businesses are involved with tax fraud or not. Any company must fulfill its federal tax requirement so that the national economy can keep going. If the companies decide to escape the tax charges, the government will detect them based on the principal business code. 

Is There Any Specific Way To Apply For A Principal Business Code?

There is no specific way to apply for a PBC. You simply have to look at the list to find out the main domain of your business. It takes a lot more time than you can imagine to cover the list and find out the industry domain that fits your business. But, once you find it, you simply have to put the code when you fill the governmental tax forms. 

Once you submit the form, your business will be registered with the IRS under the specific industry domain. Of course, some companies fall into a category in an obvious way, and some may not fall into the obvious sort. In that case, you have to filter the entire PBC list before you find the code that fits your business the most. 

What Is The Relationship Of Principal Business Codes With Tax Returns, And Tax Audits?

Every kind of business required to file tax returns in the U.S. must have a PBC. Even a specific description of your operation will also be found out with these codes. But, do you want to know the secret for flagging taxpayers to get the audit result in their favor? At least some portion of this secret lies in comparing financial ratios that you file under the PBC. 

The IRS has a huge pillar for comparison, and they use anomalies to make the comparison. If you choose the correct PBC, you will make it easier for them to compare your financial results with your peers. Thus, you may have a slight chance to reduce your tax auditing scopes. 

FAQs

After going through the concept of PBC repeatedly, we have curated these details for you. Still, we think people have some questions about it that always remain unanswered. Those questions are;

1: How Do I determine My Business Activity?

Ans: A business may have different income sources, so how will you find your authoritative income source. Measure all your profits from the different kinds of sources, and compare them. The activity that generates the most profit, and revenue for your firm, is your principal business activity.

2: Is The IRS business Codes The Same As The NAICS business codes?

Ans: Yes, the IRS business codes are similar to the NAICS business codes. Principal business codes are based on the NAICS codes. All its details are mentioned in the IRS tax code schedule. 

3: What Are The Types Of Principal Business Codes?

Ans: There is schedule C that determines the codes for limited liability corporations and sole proprietors. The U.S return for partnership decides codes for multi-partner LLC. Finally, there is the U.S. Corporation income tax return, which is for the corporations. 

Final Words

We hope you have found out whatever you needed to know about PBC in this article. If you still have some unanswered questions, you can post them in the comment box. But, always remember if you are starting a business, applying for the PBC is mandatory. 

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