@Critter wrote:
One flaw you are not understanding is the Sch E deduction negating the Sch C income ... it does for federal taxes but not for the SE taxes so it will cost you 15% in SE taxes to follow this idea.
@Anonymous I agree with @Critter with respect to the "flaw" quoted above.
Moreover, your proposed plan actually violates a codified principle known as the economic substance doctrine. In short, your planned "transaction" would have to change your economic position in a meaningful way and you would need a substantial purpose apart from the federal income tax effects.
It is fairly clear that your sole purpose would be to alter the federal income tax effects and does not change your economic position in a meaningful way (again, other than the tax effects).
I.R.C. §7701(o)(1):
(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayers's economic position, and
(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
