1. It depends: Sch C is to report business income and pay self-employment tax.
When you are not actively working the business, you do not use the Sch C. Being inactive one year, pauses the depre...
See more...
1. It depends: Sch C is to report business income and pay self-employment tax.
When you are not actively working the business, you do not use the Sch C. Being inactive one year, pauses the depreciation. It will pick back up when you are active again. Many people have sporadic income for a variety of reasons.
If you are actively working but not enough to get a 1099-NEC, then you would continue to use the Sch C to report the income and expenses.
2. Expenses are claimed when you file Sch C along with depreciation- Publication 946, How to Depreciate Property states: To be depreciable, the property must meet all the following requirements.
• It must be property you own.
• It must be used in your business or income-producing activity.
• It must have a determinable useful life.
• It must be expected to last more than 1 year.
3. Leave out Sch C when not actively working. If you are actively working, file a Sch C. Many people have a large Sch C and never get a 1099. It depends on the type of work you do.
4. Expenses that make your Sch C negative are a concern because your business must have positive income 3 out of 5 years for most businesses in order to be considered a business. Otherwise, the IRS may reclassify the business as a hobby and disallow all expenses and depreciation.
5. Example:
Ben digs trenches for 10 years, filing a Sch C claiming his equipment and expenses.
Ben is seriously injured and unable to work for 2 years. No sch C is filed, no expenses are taken.
Ben is finally able to work a little bit helping out friends, in his line of work and makes a little money from several people but no 1099 is issued. This is his line of work and he will file the Sch C and resume depreciating his equipment and claiming expenses.
Ben can show that this is how he pays the bills and he is trying to make the business work again. It is not a hobby.
See: Help to decide between a hobby or business
Reference: Self-employed individuals tax center has information to help a business grow, claim deductions, everything you could need to know on the tax side and we are here to help!