The North American Industry Classification System or NAICS is the standard used by statistical agencies to provide a Principal Business Code which classifies a business for the purpose of publishing stats related to the economy of the United States. The North American Industry Classification System known as NAICS is tasked to put similar businesses together so as to track economic activity. NAICS classifies business establishments for the purpose of ultimately collecting statistical data connected to the U.S. business economy.

The code is determined by the type of business activity an organization is involved in, the activity that generates the optimum revenue for the organization. According to the United States Census Bureau, the code, in general, will be determined by the highest relative share. This particularizes production costs and capital investment. However, as a matter of fact, it is revenue or employment that determines it.

A Number Made Up Of 6 Digits

A Number Made Up Of 6 Digits

Governmental agencies such as Canada, the United States and Mexico have standardized data to analyze economic activity. The NAICS code is a number made up of between 2-6 digits. Within NAICS, there are 20 main 2-digit code classifications referred to as sectors. Industries can be identified by 4 digit codes and subcategories by 3-digit codes.

A business can have multiple codes, and you choose the NAICS closest to the primary business activity of your business. Every business has a principal business code. This is for filing federal business tax profits. It can also be for any other government identification functions. This six-digit code reveals something of the kinds of products or services you sell.

Business Activity Code

Business activities are those things that a business does so that it can make a profit. It’s just a general term that includes all the activities it is involved in. There will be operating activities such as the manufacturing, marketing, and selling of goods. There will also be investing activities that relate to the use of cash such as the buying and selling of equipment, goods, and property. Financing activities include sources of cash such as loans from banks and the repayment of loans etc.

A business activity code provides information about the primary activities of a business. There are a number of coding systems being used around the world and some nations with close business ties have developed standardized codes to make things easy. An example of this is the North American Industry Classification System or NAICS.

Check With Your Financial Advisor

Check With Your Financial Advisor

Such codes are used for a variety of purposes. Determining a business activity code most times requires looking it up in a codebook. If a business offers a number of different things that may not fit precisely under one code, it may be better to consult with an accountant or financial advisor.

Principal Business Code Lookup

For a Principal Business Code Lookup, you can find your business activity code, at NAICS Association. It requires you to enter a description of your type of business in the Keyword Search field and then clicking on the submit button.

Looking up the right code for your specific business is simply a matter of fathoming which one gives the most accurate description of the business’s main activity. If you sell lots of products and services, the first thing is to decide which your general domain is. If you run a guesthouse or hotel, it could be accommodated. Once you have that sorted out, you need to work out what part of your business generates the largest revenues as this will take you to the right principal business code lookup.

The Role Of Principal Business Activity Codes

The Role Of Principal Business Activity Codes

The Standard Industrial Classification System (SIC), was developed to create a program for classifying different types of industries. This was a system for classifying companies according to their activity. Created by the United States government in the 1930s, it was replaced in 1997 by the North American Industry Classification System (NAICS).

It was developed by the governments of the United States, Canada, and Mexico to provide a common business classification scheme.

The IRS mandates that certain businesses include their Principal Business Activity Code on their tax returns. You can find them on Schedule C of the IRS tax code. This list of principal business activities and their codes are designed to classify a business by the kind of activity they engage in.

The SIC has been changed so as to show any changes in the United States economic structure. New industries were added to the economy and in 1997 the new North American Industrial Classification System (NAICS) was designed. It’s a system that covers all new industries. It’s the first economic classification system that groups together goods and services that are produced making use of similar processes.

The NAICS sectors and their two-digit codes are laid out in the principal business code worksheet, some of which are –

  • 11 Agriculture
  • 23 Construction
  • 31-33 Manufacturing
  • 44-45 Retail Trade
  • 48-49 Transport and Warehouses
  • 52 Finance and Insurance
  • 53 Real Estate and Rental and Leasing
  • 61 Educational Services
  • 62 Health Care and Social Assistance
  • 71 Arts, Entertainment, and Recreation
  • 72 Accommodation and Food Services
  • 92 Public Administration

The IRS and the United States Census Bureau make use of your principal business code for statistical purposes, collecting and evaluating statistics by comparing annual revenue. Also, the Small Business Administration uses the principal business code to determine the size of your business.

IRS Business Code

An IRS business code is required on all business tax returns. As already mentioned, if you have a number of sources of income within your business, the one that brings in the most revenue must be entered. If you are a sole proprietor and you own more than one business, you will have to fill in a Schedule C for all the businesses you operate.

For all kinds of business tax returns, you will have to provide a principal business description and Code. The description must include the category and a little bit of information on the details of your customers.

For some businesses on Schedule C, you will need to enter the principal business description and the code on Line B. On Form 1065, which is the U.S, Return of Partnership Income for multi-member LLCs and partnerships, you must enter the PBC on line C, the principal description on Line A, and also a brief description of the main product or service on Line B.

On Form 1120-S, which is U.S. Income Tax Return for an S Corporation, you will enter the Principal Business Code on Line B, and no principal business description will be required.

State and federal laws are constantly changing and you have to always check out your own state’s laws or check with your financial advisor. A Principal Business Code is used by the Internal Revenue Service, U.S. government agencies, and the U.S. Small Business Administration.

When Are These Codes Required?

It does not matter what business you have, you will have to enter the code for principal business activity when you prepare your income tax returns. You have to enter the code on all business tax returns. Whichever part of your business brings in the most income, you will have to mention this.

There are also other U.S. government forms that require a principal business code. The Small Business Administration requires NAICS codes for businesses that want to join an SBA loan guarantee program.

Government agencies that use a Principal Business Code will assign a code based on the information that a business provides. Most times, a business can influence what its PBC is. The Census Bureau as an example will assign a PBC when a business owner responds to a survey.

NAICS uses the first 2-digit code to represent a host of categories such as –

  • Forestry
  • Agriculture
  • Food Services
  • Fishing

Every industry in the United States has a NAICS code. Did you know that the code can even affect your chances of getting a business loan?

There is an older classification system known as SIC or Standard Industrial Classification code. It has been replaced by NAICS, but it is still used.

Knowing your company’s NAICS codes is important as it can save you lots of money and give you a better chance when you want to apply for commercial loans.

On the NAICS website, within a category, you need to look for the description that represents your business. For most types of business tax returns, the principal business code and the principal business description must be provided.

NAICS is reviewed every 5 years so as to keep pace with the ever-changing economy.

The Structure Of NAICS

The Structure Of NAICS

NAICS is a 2 – 6 classification system. Each digit in the code is part of a series of categories, and more digits in the code mean more classification detail.

  • The first 2 digits are an economic sector
  • The 3rd digit is the subsector
  • The 4th digit is the industry group
  • The 5th digit the NAICS industry
  • The 6th digit is the national industry.

The 6-digit level allows for Canada, the United States, and Mexico to have country-specific detail. A valid NAICS code has 6 digits. The number of digits in a business activity code can vary according to the system and a business can add a 6th digit unique to their nation and which provides more detail on the activities of their business.

If you are self-employed and filled in tax returns, you would have seen a place to fill in a business code. But what is this IRS business code? What is its purpose and why do you need such a code? An IRS principal business code is also a 6-digit number that classifies the products and services your business deals with.

The code categorizes independent contractor jobs or sole proprietorships by an activity they are involved in so as to facilitate the administration of the IRS. The business code used by the IRS is based on the NAICS which is updated every 5 years. The name for business codes is also referred to as Professional Activity Code or it could also be Primary Business Code.

Where Does The Code Come From?

You pick the code that suits your business. To find the right code for your company, you can make use of the NAICS Search Tools to identify a code that suits your primary business activity.

As long as you have a business, you must have business activity. Most businesses have more than one revenue-producing line of business.

Groups Similar Businesses Together

Groups Similar Businesses Together

There are many kinds of businesses to run and some require just one person to run it and others require more people. The principal business code gives an idea of what a person does and is used when filling in tax forms.

Principal business code or Professional activity code, as it is also known, is this 6-digit number that groups different business services you offer together. The code is needed so as to file federal tax returns with the Internal Revenue Service (IRS).

Operating activities are the most important activities that are bringing revenue into the business. These activities have an effect on the cash flow of the business and determine its net income. For the IRS, a business’s activity principal business code is all about the kind of thing the business does that brings in the most money for the business.

Principal business activity codes are based on NAICS. Every business tax return is required to have a principal business activity code. This includes all businesses. To determine your business activity code, a description of your business operation is required. When giving your business details, including the category your business fits in, and provide information on your customers.

A principal business code can be used in different ways and also by different entities. For the IRS, the codes are used to get information about businesses to compare revenue and to check the standard of different businesses.

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