Can I file Schedule C for single member LLC with less than $400 income and choose NOT to deduct expenses that would put me in loss position?

[mnjolson22]

I started a design business in 2019 which is a single member LLC disregarded entity. 

In 2019, I reported design income of $5500 on a Schedule C but claimed startup and ongoing expenses which put me in a loss position for the first year.   

2020 is my second year, but I only had $250 in income due to personal health issues requiring surgery which was delayed because of the lockdown and because as a senior in "high risk" category I tried to stay home during the pandemic.   My direct business-related expenses (mostly design software license subscription fees website fees and costs) put me in loss position again.   

2021 is also looking uncertain as my health concerns continue and spouse is needing cancer treatment so I may be doing caregiving.   Therefore I am concerned that 2021 might be a loss also.   This raises the worry  that filing 3 years of losses would subject my business to being determined a "hobby business" and I would have to abandon it.

Questions--Would any of the following scenarios either be acceptable or not advised and why?

Could I elect not to file Schedule C at all for 2020 since income only $250 (I would still be filing 1040 for personal income) so as not to have a second loss year?  Or would the absence of a Schedule C filing be unwise or a "red flag."

Could I elect to file a Schedule C on the $250 income and not declare expenses this year (even though they were incurred)--essentially "eat them" so as to not file a loss?   Could the expenses be deferred to a year when I have better business income?  (However, I do have personal income against which the expenses could be claimed).

If health circumstances of myself or spouse limits my ability to work in 2021, would it still be counted as a "loss year" and thus trigger the hobby business label even if I have no income and claim no expenses and do not file a Schedule C?    

Might the "hobby business" ax be delayed if one of the 3 years of losses is the COVID year since so many businesses incurred losses during the pandemic?

Should I just shut down the business altogether now until I can see that my personal life conditions are better supportive of business activity so as not to file 3 years of losses?

[SweetieJean]

Sorry, but the IRS requires you to claim all related expenses.  For example, see this:

earned income self employment income and business expenses | Earned Income Tax Credit (irs.gov)

[SweetieJean]

You are in a tough position, because the IRS requires that you be actively engaged in the business with an intent to make profit. But you might be able to get away with COVID and health issues as a suitable excuse, especially if both the income and expenses are low.  But it will certainly be different if this continues for several more years.

[mnjolson22]

Thanks, this afternoon I have read over 50 posts on TurboTax related to my question which led me to the same conclusion you have indicated.

Re business expenses, I read that internet and cell phone expenses are sometimes not best to claim as there are personal use components mixed in and may tend to be scrutinized or disqualified.   Last year, I claimed these at 50% business related, but this year I was contemplating leaving them off given my embarrassing loss position.   Although they "could" be claimed, I'm confused about whether that is prudent if they are questionable.

[mnjolson22]

Re business expenses, I read that internet and cell phone expenses are sometimes not best to claim as there are personal use components mixed in and may tend to be scrutinized or disqualified.   Last year, I claimed these at 50% business related, but this year I was contemplating leaving them off given my embarrassing loss position.   Although they "could" be claimed, I'm confused about whether that is prudent if they are questionable.

[JeffreyR77]

As @SweetieJean says, you are required to report all business expenses. 

The IRS does not automatically apply the Hobby label to a Schedule C activity when it shows 3 consecutive years of losses.  COVID-19 certainly is going to have an impact on conventional rules of order.

What the IRS does looks at more closely and consistently is tax returns that may qualify a taxpayer for the Earned income Tax Credit that also have a Schedule C with variable income. 

Leaving off expenses can increase the amount of earned income and increase the amount of earned income on a return and can increase the amount of Earned Income Tax Credit. 

The expenses are not questionable if they are ordinary and necessary for your business to operate and try to make a profit.