If your business had more expenses than profit this year, is that ok? For example, my gross income is $550 but my net income was negative $2400. Would that draw a flag?

Not necessarily, because there are years that some businesses go without making a profit, this situation is not unusual.  While you may not have made any profits, if you have expenses you will want to file a Schedule C to claim them, therefore, regardless if you made a profit or not it is best to file your return.  If you do not claim your expense in the year you pay them, you may not be able to deduct them in the future when you do have income. Please read the following article, while it is about no income, it can pertain to you as your business was not profitable this year; Can I File An Income Tax Return If I Don't Have Any Income?

Thank You!