Am I doing carryover loss for my self employment correctly?

[nathstaxes]

I earned about $650 from self employment in 2023,

but won't receive the funds in my bank account until early 2024.

From my research, that means I should treat it as 2024 income.

I also purchased $1,500 in equipment for the business in 2023.

So, because I don't count the $650 as 2023 income, but

the $1,500 expense did occur in 2023 - I claim the full $1,500 as a loss, is that right?

In other words, my income for 2023 will be -$1,500?

If that's right, I believe I can carry over this loss to 2024, to reduce

my 2024 self employment income, is that right?

I have no other income (like W2 income).

Thanks!

[Anonymous_]

You have absolutely no other income other than that from self-employment? 

Can you be claimed as a dependent on someone else's return?

A loss from self-employment (business) can generate an NOL (which you need to calculate).

See https://www.irs.gov/publications/p536#en_US_2022_publink1000177318

[nathstaxes]

No other income.

Can't be claimed as a dependent.

I changed the original question as I realized that

I won't receive the $650 until early 2024, making

it 2024 income, even though it was earned in 2023...

[Mike9241]

if you don't have an NOL there's nothing to carry forward. An NOL carryforward only offsets other income for the year claimed. It does not affect self-employment taxes. 

[nathstaxes]

I think I understand what you're saying, but not sure.

The $650 income won't hit my account until 2024.

The $1,500 expenses were incurred Dec. 2023.

So, my NOL for 2023 is $1,500 right?

But you're saying carrying over that NOL to 2024 won't reduce

my SE taxes, only income taxes. I won't incur income taxes in 2024 unless

I make more than the standard deduction (which was $13,850 in 2023).

Do I have that right?

If I do have all that right, then that means it is MUCH better to have income and expenses occur in the same year, as that way I can just subtract the business expenses from the gross income before I pay

any SE tax, right?

For example, say in 2024 I made $5,000 gross SE income but have expenses of $3,000 = $2,000 net income to pay SE tax on. Right?

Compare that to $3,000 expenses in 2024 with $0 income and $5,000 income in 2025 with $0 expenses =

$5,000 net income for SE taxes in 2025 (because NOL from 2024 doesn't reduce SE taxes).

Is that right?

[ThomasM125]

Yes, it is advantageous to match your sale and associated equipment purchase in 2024. Entering the equipment purchase as a business asset in 2023 and choosing the section 179 depreciation allowance will prevent the net operating loss issue and allow you to match your equipment deduction and associated sale in 2024.

Assuming you made the sale in 2023, even though you didn't receive the receipt until 2024, then you should report the equipment purchase on your tax return in 2023. You will have the option of choosing to expense (write off in the current year) the cost of the equipment as a "section 179" deduction when you enter the equipment as a business asset in TurboTax. The section 179 deduction is only allowed in the current year in an amount up to your net business income in that year, the rest will be carried over to offset business income in the next year. So, your equipment purchase will be deductible against your sales in 2024 as a carryover business deduction. You will not have a net operating loss in 2023, so you don't need to be concerned about that.

Here is a link to more information on the section 179 deduction:  Section 179 deduction

[seifsell15]

This was an informative post answering most of my question. Though I have a subtle difference.

In 2023 I took early retirement, so I did have some W2 income. I also started a business (consulting/ecommerce), though have $0 income from that startup, but did have expenses (Indiv LLC setup, computer, website, ecommerce program/training, etc).

I will file as an individual with business pass thru. Because I have the W2 income, do I need to consider those startup business expenses in 2023 or can I carry them over to 2024, when I am only dealing with startup income?

Also, I believe it really comes down to whether those expenses (when itemized) sum greater than the standard deduction, otherwise it doesn't make sense using itemization, right?

Really, it would make life easier 😅 to take the standard deduction in 2023 and carryover expenses to 2024 for consideration (vs standard ded) then. I just want to ensure I am doing this correctly(legally). 

[PatriciaV]

It depends if your new business started in 2023 or 2024. If you didn't actually "open your doors" until 2024, you wouldn't report the startup costs until that year. All the expenses you mentioned may be considered to be startup costs. You may expense up to $5,000 in startup costs in the year that your business starts. Any amount over $5,000 would be amortized over a period of 15 years.

Note that your business activity will be reported on Schedule C Profit or Loss from Business as part of your Form 1040 return. Any profit would be taxed as self-employment income. None of this activity is reported as itemized deductions on your individual tax return, which allows you to claim the standard deduction if you qualify.

@seifsell15 

[seifsell15]

@PatriciaV Thanks for your response!

I registered an LLC in Jun'23 (out of my current state), but really did not 'opened the doors', until early in 2024 when registering the business in my home state. Additionally, I started other side ecommerce business in 2023, but that is still developing without any income. My intent is to run an agency with a couple separate DBA offerings under that LLC.

It seems, as you indicate, that I may be able to delay inclusion of the LLC business on my taxes until 2024 filing.

Though, I am concerned with tax representation of the LLC registration in 2023... meaning since registered in 2023 do I need some filing activity in 2023 for that business entity, though it did not actually 'operate'?

[PatriciaV]

No. It's acceptable to form an LLC one year and open your business in another year.