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IvanP
Level 2

Sole Proprietor filing

Hello everyone,

I hope you all are being well in these tough times.

 

I am filing joint return with my wife. She is on a w-2, I am self-employed. We're filing with TurboTax Self-Employed. In 2019 I started a Sole Proprietor online retail business project (clothes) which resulted to spending for inventory but very little sales. Basically my business expenses are huge in comparison to income. Can I file Schedule C for this business if my plan is to sell whatever I can with no profit (ad costs will eat it) and then liquidate what's left? Is there anything important I need to know?

Thank you so much!

Best Regards

Ivan

3 Replies
DaveF1006
Employee Tax Expert

Sole Proprietor filing

You can file a Schedule c business return with a loss for 2019. First year businesses fail routinely fail in the first year of business.  You can also report it next year as a business that has been disposed of in your 2020 return if you decide to liquidate it. if you continue to stay in business for three more years after 2020, you will need to show a profit in the business or the IRS will reclassify your business as a hobby meaning that you cannot declare more losses after the second year being in business.

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IvanP
Level 2

Sole Proprietor filing

If I file Schedule C business return with a loss for 2019 and liquidate my inventory in 2020 or 2021, will the IRS be on the look for my inventory? I'm not exactly sure how do I close this business in tax filing terms.

RobertG
Expert Alumni

Sole Proprietor filing

The IRS will not be on the lookout for your inventory.  

 

Audit selection is based on each individual return.  The IRS does not look at prior or subsequent returns unless a return has already been selected for examination.

 

You don't need to do anything to close a sole proprietorship.  You can indicate on your return that it is your final Schedule C, but you are not required to do this.

 

The Internal Revenue Service allows you to take a tax deduction for legitimate losses incurred in the operation of your business. 

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