Tax Year Prior to 2020: Claiming Business Deductions (Schedule C) for Deceased on Joint Return

[BenH]

I am helping my mother prepare a joint return for her and her spouse who passed away in 2019.

He was self-employed and every year filed a Schedule C for his business income and expenses.

He passed in February, but had accrued expenses already for the business in 2019 (office, car, phone, etc).  He had not made any income yet as the business tended not to produce income from clients until mid-year.  Therefore the business operated at a loss for 2019.

I see no reason why we can't file the Schedule C showing this loss since it was accrued.  I believe my mother should be able to use these loses to offset their other personal income for the year and I can't find anything saying this is not allowed. 

Is this acceptable?

[VictorW9]

A schedule C filer is usually on a cash basis. So when you said accrued, what do you mean? Whatever filing he did of his schedule C in 2018 would have to be on a cash basis. Therefore, any expenses that happened in 2019 can be reported in 2019 as long as they were paid in that year. If the business received no income for 2019, then zero income should be reported.

So, on the whole your mother has the choice to file as either married filing joint (MFJ) or filing as a Widow. The one that gives her the biggest benefit should be used.

[BenH]

I'm not sure what 2018 nor the status of my mother's filing has to do with the question.

Clearly it is more beneficial to have her file jointly (as surviving spouse), since that would make here eligible for the deduction for both of them.   Additionally, as I mention her spouse's business had expenses which were paid, but no income was earned in 2019 ("accrued" might have been a bad choice of words as it confused "accrual accounting" with "cash").  

So, in addition to filing a joint return, it seems feasible that she should also be allowed to file a Schedule C for his business to indicate his losses (expenses but no income).

I just want to ensure this wouldn't raise many red flags. 

[LeonardS]

It appears that there is some confusion about the business having accrued expenses.  If by accrued, you mean that expenses were paid then yes these expenses are deductible even though the business did not have any income.

[BenH]

Still not clear how my last response leaves any doubt to the fact that expenses were paid in 2019 even though no income was received.  Still, your last response provides the answer I need.  Thanks.