Filing Small Business Schedule C

[lczh0518]

Hello,

I am using Turbo Tax Premium. My partner and I are Married Filing Jointly. We both have W2's and I have a side business that I am starting up. When we filed for 2022, I used Schedule C to list out business startup costs <5k with no income - the return was successfully filed.

For 2023, I listed out expenses for my side business and added an "income interest" received through opening up a business checking account - needless to say, my expenses are more than my income as I am still designing my cloud business. Once I added in all my income and expenses under the Federal Taxes section, TurboTax takes me to the "Your Audit Assessment is Ready", we found 1 items for you to review: Business Losses - "It looks like your business has taken a loss over multiple years. This can happen, especially if your business is new or growing. If your self-employed work doesn't make a profit over a number of years, the IRS may consider it a hobby or too sporadic to qualify as a business. If your business does take a loss, make sure you are actively trying to make a profit and have receipts and documentation for your expenses." Once I click Review, it takes me to the “Your 2023 self-employed work summary”, which I have already entered all my income and expense information for my business. 

If I continue on, it takes me to a page stating: "Looks like we need more info: Even if you don’t do the “Business” work anymore or if this work doesn’t apply to you, you’ll still need to update this info to keep your return accurate. Let’s get it done. We’ll take you where you need to go. Update Now or Update Later." I am not sure why this text is showing about me not doing the business anymore or if the work doesn't apply to me, as it does?

I was able to skip over and complete our State Taxes. We have not attempted to submit the tax filing. The two aforementioned pages which kept asking me to review income and expenses for my business, could potentially be about my expenses being more than my income but I am not sure. 

Any help would be appreciated!

[DawnC]

You need to go through those questions about your business.   Those are follow-up questions about your business code, Qualified Business Income Deduction, and general business information that needs to be confirmed on your Schedule C each year.    It has nothing to do with your expenses being more than your income.   So, click through those screens and give TurboTax that information it needs to minimize your audit risk 🙂

Here is the gist of the message in this article.   It is normal to have a couple of years of losses, as long as you have a profit motive.   When the IRS Classifies Your Business as a Hobby

Here are some other articles you may find helpful with your new business!

Reporting Self-Employment Income and Expenses

New Small Business Legislation

Tax Tips for Sole Proprietors

Starting a Business

[lczh0518]

Hello Dawn,

Re:  So, click through those screens and give TurboTax that information it needs to minimize your audit risk

There are no further screens for me to click through, the pages keep taking me back to the income and expenses page. Yes, I am aware of the hobby vs business rules.

Not sure how to proceed or if I should attempt to submit taxes.

[DawnC]

It looks like you are using the desktop program, so you should be able to click on Forms (upper right corner) and see all of your forms.   If you have any forms with a red exclamation point next to them, they are not complete.   If you have no red ! anywhere, your return has no errors and the review message can be ignored.    You may also have a form in your return that is not ready to be filed yet; there are several we are still updating.   

Forms availability for TurboTax - there is a tool that can be used to check on the availability of specific forms.

[lczh0518]

Hello Dawn,

We are not using the desktop program. We are using Turbo Tax Premium Online and the upper right-hand corner has the following menu: Notifications, Price Preview, Search, Help, Live Tax Advice. Is there anywhere else I can view for red errors (if any)? Notifications does not say anything about errors.

Not sure how else to proceed.

[DawnC]

What page do you see the Needs Review message?    Have you gone through these sections below and clicked Continue to answer the QBI questions?   When you run the Review in TurboTax, do you get errors?    

[lczh0518]

Hello Dawn,

Under Business Summary, I have gone through Your “Business” Info, answered all questions for Qualified Business Income, and 2-year comparison. Also answered the Uncommon Situations questions. Once I click continue it says Nice! You’ve lowered your taxable income. And it shows my income vs expenses. I click Continue

Next, it takes me to the "Your Audit Assessment is Ready", we found 1 items for you to review: Business Losses - "It looks like your business has taken a loss over multiple years. This can happen, especially if your business is new or growing. If your self-employed work doesn't make a profit over a number of years, the IRS may consider it a hobby or too sporadic to qualify as a business. If your business does take a loss, make sure you are actively trying to make a profit and have receipts and documentation for your expenses." Once I click Review, it takes me to back to the “Your 2023 self-employed work summary”, which I have already entered all my income and expense information for my business. 

[DawnC]

It is just a warning, which you have already seen and understand; it will not prevent you from e-filing successfully.