Your Guide to Business Codes for Income Taxes

What is a principal business code?

An IRS principal business code is a designated six-digit business code that appears on tax returns. It classifies the main type of products or services sold by the business.

This code categorizes sole proprietorships and independent contractor jobs by an activity they’re heavily involved in, to help the IRS process tax returns. It’s sometimes called a “professional activity code” or a “primary business code”.

These business codes belong to a system called the North American Industry Classification System, which is why you’ll also see them called “NAICS codes” (pronounced “nakes”). The system is updated every five years — most recently in 2022.

When do you use a principal business code?

All businesses operating in the US, from Fortune 500 companies to part-time gig workers, are required to enter a business code when they file taxes.

For freelancers and contract workers, this means you’ll fill it in on your Schedule C when you file self-employment taxes.

Here's a table showing where different types of businesses should input their NAICS codes:

What happens if you freelance in multiple industries?

If you do two different types of jobs — for example, DJing and copywriting — you’ll fill out a separate Schedule C for each.

But what if a single business provides you with multiple sources of self-employment income? (For example, if your copywriting business occasionally brings in a client wanting you to write press releases for a PR campaign?)

In this case, you’d use a single Schedule C and enter the the NAICS code for the business activity that earned you the most revenue that year. (In this case, it would be copywriting.)

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Do you ever need a business code outside of taxes?

For the most part, that’s the only time freelancers will use it. However, it might also come up if you:

• Apply for a loan from the Small Business Administration (SBA)
• Do contract work for the federal government

How to identify your principal business code

The easiest way to find your code: go to our freelancer tax deduction tool and find your job in the dropdown. Click on “See Write-Offs,” and your NAICS code will be right at the top.

If you prefer something you can download, print out, and keep on your refrigerator till it's time to do your taxes, Keeper also offers a PDF cheatsheet of business codes.

Finally, you’ll also find the most recent list of business codes at the end of the IRS’s instructions for filling out Schedule C. Make sure you’re looking at the 2022 instructions, since that’s when these codes were last updated.

How are NAICS codes structured?

The six digits in a NAICS code are part of a series of progressively narrower categories. Use the first two to find the broad category your business belongs to, such as Agriculture, Forestry, Fishing, and Hunting (11) or Accommodation, Food Services, & Drinking Places (72).

Once you know your category, find the description that best represents your business.

Business codes in action

Let’s see how this works in the real world.

Theo and his husband, Don, decide to open their dream cafe, Is it a Sandwich? (where they only sell food that may or may not be a sandwich). The first year they file taxes, they look under the “Accommodation, Food Services, & Drinking Places” category. Listed under “Food Services & Drinking Places”, they’ll see the following options:

• 722514 - Cafeterias, grill buffets, & buffets
• 722410 - Drinking places (alcoholic beverages)
• 722511 - Full-service restaurants
• 722513 - Limited-service restaurants
• 722515 - Snack & non-alcoholic beverage bars
• 722300 - Special food services (including food service contractors & caterers)

Theo and Don don’t have a waitstaff — Don makes the grinders, burritos, and hot dogs in the back while Theo mans the counter. One day, after everyone’s served, they grab their bagel and pita and seat themselves while they try to figure out their business code.

They’ve started catering a few local business events — which would fall under “special food services.” However, the bulk of their income still comes from people stopping in for lunch at their shop. That’s why they go with 722513, for “limited-service restaurants.” 

Will you get in trouble for using the wrong NAICS code on your taxes?

No, there are no penalties for using the wrong principal business code on your taxes.

However, because the IRS uses these codes to classify similar businesses together, using the correct code means you’re less likely to have your tax return flagged for claiming certain business expenses.

How business codes relate to your business write-offs

For example, a vlogger, by definition, has to own a camera of some sort — and she’d be wise to write that off on her taxes. A gig worker driving for DoorDash, however, can’t claim a camera as an “ordinary and necessary” purchase for their business. So if you’re a vlogger who somehow accidentally uses a NAICS code implying you’re a delivery driver, some of your legitimate write-offs might look like red flags.

Business codes are one way to determine legitimate write-offs. In fact, your job is one of the things Keeper uses to automatically finds write-offs for you. By comparing your expenses to other users in your industry, we can identify even more write-offs than you’d think of on your own.

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How to change your business’s principal business code

If you ever need to update your business code, you can simply switch to using the new one on your next tax return. No additional paperwork required!

This works because different federal government agencies maintain their own directories of businesses, and assign classification codes based on their own needs. Some of them might even disagree.

Because of this, there is no “official” directory of which businesses belong under which NAICS code.

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Common business codes for modern freelancers

We live in an ever-changing world, and sometimes government agencies and classification systems can take a while to catch up.

Content creators, streamers, and gig workers of all kinds can easily find themselves staring at the business code chart on their tax return for hours, struggling to figure out where they belong.

Eventually, there may be more specific codes for these industries — the NAICS is scheduled to be reviewed every five years for potential revisions to keep pace with the changing economy, after all.

In the meantime, we’ve put together a simple chart to cover a wide range of 21st-century jobs.

Remember: By using an accurate business code, you can save money and avoid unnecessary scrutiny on your tax return. It’s a double-win.