Continued future losses as a solo practitioner

[jonvanarkel]

I am a licensed attorney and have worked for 40 years as a lawyer in private practice on my own as a solo practitioner. I just turned 67 years old, have a medical issue and stopped taking new cases January 2023. I did not generate income as a lawyer in 2023 and 2024 and took a loss those two years. I do not expect to generate income as a lawyer in 2025 or ever again in the future (although never say never, right?). I do have other nominal streams of income and started taking early social security in 2023. I still have a law license, maintain a law office and have some legal professional responsibilities to current clients. I may resolve those cases by the end of 2025, but not have any legal responsibilities to any clients in 2026. How long (for how many years) can I continue to write off my overhead and expenses as a lawyer and take a loss which would then reduce the income taxes I pay on my other income and my social security payments?

[K M W]

A sole proprietor would report business income and expenses on Schedule C, Profit or Loss From Business, on their tax return.  The question is whether or not you have a business.

The Schedule C instructions state "Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity, a not-for-profit activity, or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8j."

Although when an activity ceases to be considered a business is a grey area, the two factors in your situation that I would consider are as follows:

• You indicated that you do not anticipate to generate income in 2025 or in the future.
• You indicated that you have stopped taking new cases in January 2023.

Based on the factors you outlined, it would appear that your activity does not rise to the level of being considered a business, and therefore should no longer be reported on Schedule C.