Only w2 income. I started developing a game as self-employed but have only expenses. Can I deduct them?

[Anonymous]

Hi,

I had only w2 income in 2022. I started developing a game as self-employed (no company) in 2022, but I have only expenses like pc, laptops, phones, consoles, android and steam store fees, etc. The game is not finished, and I did not sell/earn anything. I plan to finish the game in 2023.

All of that equipment cost a lot of money, and expensing this can save me a lot. But as I understood, I must file them in 2022 taxes and cannot do this in 2023 taxes.

Is it standard practice if I file these expenses in my case? Is it a high risk to be audited?

[MichaelG81]

Yes, there is an audit calculator based on what you input for your business once you are done entering all your expenses and select done or continue. Any money or income/deductions in 2022 would be reported on the current year tax return. You may have to upgrade to a different product of TurboTax when entering your expenses depending on which version you have, to claim deduction from Schedule C income or business income/loss after all deduction have been added. For example no income for Tutor (Self Employed), but W2 income, inputting business (Tutor example) vehicle expenses results in a lower tax liability or higher refund. You could always start for free to see if it makes a difference in your situation before buying the product. But it can make a difference in your W2 income, or possibly create a NOL or net operating loss, that if applicable can be carried forward if not all used.  SAVE RECEIPTS! 

@Redpawesome

[hbl3973]

Redpawesome,

Be reassured that you are far from alone in not having sales income from a new business enterprise for a year or more.  What the IRS is concerned about is such business with little or no income for a period of years.  That is typical of a hobby rather than a business and at that point one would likely get a letter from the IRS.  Take a look at https://www.irs.gov/pub/irs-news/fs-07-18.pdf  for more details on what the IRS considers the differences between a hobby and a business.

[MichaelG81]

True, @hbl3973, be very careful you do not pass the time limit of not producing income or it can be considered a hobby and you will lose the ability to write off expenses related to that hobby.

@Redpawesome

[Mellowed]

I consulted a tax expert who suggested that it's a common practice for self-employed individuals. It helps offset your taxable income, especially when you're investing in tools and equipment for your project. Just make sure to keep meticulous records of your expenses. As for the risk of being audited, well, it's always a possibility, but if you have proper documentation and your deductions are legitimate business expenses, you should be fine. And about your game, that sounds exciting! If you're into play games for real money, there are some cool platforms out there to explore. Can't wait to hear more about it.