SPECIAL FORUM EVENT QUESTION: I guess I am asking if I can be simultaneously self-employed and unemployed on my 2021 taxes?

[KayWerks]

I have been on PUA unemployment through September 2021. If I ran a business through March 2020 but have not yet been able to start it back up in 2021 as planned, am I  able to deduct for items and materials that were purchased through the months of 2021 for my business, even though it was not in operation this year?

[Carl]

Depending on your state and the laws in that state, you may (or may not) need to show that the business is "in fact" closed on your tax return.  For most businesses this is really not necessary. That's because even when closed (for the pandemic I assume) there are still business expenses accumulating. Things like business rent, utilities, facilities maintenance expenses, etc.

I would presume that you can show/prove no sales and no business income during the shutdown. So I really don't see an issue with PUC on this unless they have reason to audit you on it. (I honestly can't see why that would happen - unless there's a sudden increase in funds in a bank account you have that can't be accounted for by anything other than business income.)

If you just leave the business open then any expenses incurred for the business during the "down time" are still deductible on the SCH C as a business expense, and depreciation of business assets continues unabated.

If your business was closed/shut down in March of 2020 and you want to go this route, then you would report your business as disposed of on the 2020 return. (SCH C business I presume).

If the business has assets, you show the disposition of all assets. For you, I doubt you sold those assets. So you would report them as "removed for personal use".

If your business has unsold inventory, then you need to show the disposition of that inventory. For you that would most likely be "removed for personal use".

If you claimed any business vehicle use, even if less than 100%, then you need to show the disposition of the vehicle. Again, that would most likely be "removed for personal use".

If you've done everything right, the final SCH C for the 2020 return will have the word "Final" printed on it. Can't remember if it prints at the top right or top left of the SCH C form.

When the business starts back up and re-opens in 2021 or 2022, then it would be "as if" you started a new business. Costs basis for business assets would need to be reduced by the amount of depreciation taken on those assets already, among other adjustments that would need to be made.

Overall, it could be a real bear.

[tagteam]

There is no "final return" checkbox on Schedule C nor is the word "final" printed on the form.

[Carl]

Well, back in 2006 while doing my 2005 return I had to close my business on Dec 31 2005 for to many reasons to go into here. (Basically, I had registered it with the state incorrectly.) Then re-opened it as a new business on 1 Jan 2006.

For the 2005 return, there absolutely is "NOT" a final checkbox, and I never said their was. However, on that SCH C in the top right corner is printed the word "Final". I didn't put it there, and there was no "final" checkbox to be checked either, as best I can recall.

[tagteam]

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@Carl wrote:

For the 2005 return, there absolutely is "NOT" a final checkbox, and I never said their was. However, on that SCH C in the top right corner is printed the word "Final".

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The Step-by-Step Mode of TurboTax does, in fact, contain a question concerning whether the business was sold or otherwise disposed of in the current tax year. There is a checkbox but it is on the worksheet for Schedule C in TurboTax  and not the actual form.

Regardless, the word "final" does not appear anywhere on the top of the form and is not required.

[VolvoGirl]

 Turbo Tax does ask you disposed or sold it during the year.   I was sure it did print Final at the top of Schedule C.   Must have been in the past.  I checked the 2020 Desktop program and it didn't print Final on it.   Don't know when they stopped doing that.   

[tagteam]

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@VolvoGirl wrote:

....I checked the 2020 Desktop program and it didn't print Final on it.   Don't know when they stopped doing that.   

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I am going to guess that it was when the programmers at TurboTax figured out that it was inappropriate (unnecessary or just wrong) and/or when the IRS requested that they stop.