Schedule C, to do or not to do

[Pearl2008]

For years I have had to do the Sch C as a self employed theatre professional, with 1099 income and rarely a W2.  But over the last two years, I have been employed full time and though I am still consulted etc, my 1099 work has dropped off and for the first time I have no 1099 income.  Can or should I file a Sch C to reflect that I still have my business?  I have a full office in the home, that has come in mighty handy since C19 and I have put that on the C over the years......or should I make this all unreimbursed business expenses in the dedutions area?  If I go with a schedule C it will be the 3rd years with a loss, even though I have made more money they ever, just via the W2.

[JotikaT2]

It depends.

If you anticipate having self-employed income in the future and receiving 1099-MISC income as a contractor, you should leave your Schedule C activity in the return.

But if you are going to be permanently working as an employee receiving a W-2 Form, you technically are not operating a business anymore and would not need to report any self-employment income.  

Be aware that while you can still deduct the business use of the home office on your self-employment income, this is no longer allowed as an unreimbursed employee expense tax deduction on your tax return.

Employee job related expenses

[Carl]

There are specific conditions where you are required to file a SCH C for 2019, even if the business had no income in 2019.

 - If your business has any assets (including a home office)

 - If your business had any inventory left at the end of the 2018 tax year.

 - If your business claimed any business vehicle use, even if that use was less than 100% business use.

If one or more of the above are true, then as far as the IRS is concerned your business was open for tax year 2019. So the IRS is expecting a SCH C from you. Either to show your business remained open for the year, or to show that you closed your business on or after Jan 1, 2019.

Your business is not considered closed until the following have been reported.

 - All business assets are disposed of. Either by showing you sold those assets, or removed them for personal use.

 - All vehicular assets are disposed of by the business. Either by selling the vehicle, or more commonly showing the vehicle as removed from the business for personal use.

 - Your End of Year Inventory Balance must be ZERO. Now your Beginning of Year (BOY) Inventory Balance "MUST" match exactly the prior year's End of Year (EOY) Inventory Balance. So if your 2019 BOY balance is not zero, you *MUST* make the 2019 EOY balance equal zero. There's two ways to do that. Either sell the inventory, or show the inventory as removed for personal use.

 - You must also show discontinuation of the home office, generally by showing it was converted back to personal use and is therefore no longer a home office.