Schedule C expenses for self employed who got unemployment for part of the year during COVID

[Get_it_Right]

2020 was an unusual year to say the least. For instance: self-employed/gig people could get unemployment insurance for the weeks where there was no income. 

Normally, a self employed gig worker might take the schedule C expense/deduction the whole year for, say, home office expenses, health insurance and others even if there were slow weeks with no income, as you were "in business" for the whole year. However, that gig worker would not be getting unemployment insurance as they were allowed in 2020 due to the COVID pandemic. 

So, for 2020, can a gig worker who had an income for some months, deduct Schedule C expenses for those weeks that s/he received unemployment benefits?

[ColeenD3]

You can deduct Schedule C expenses for Schedule C income. There are no Schedule C expenses against unemployment income.

[Get_it_Right]

Yes, of course. 

I'm referring to the fact that you are, for example, using a home office the whole year, but you might be on unemployment insurance for some of those weeks you are using that home office.  (This is a completely new situation for self employed/gig workers.  Previous year, you are not making any money for those weeks with no income, but it was still an "expense", so you counted it.)

Now in 2020, with the new rules for allowing gig workers to get unemployment insurance, can you count the weeks as an expense even though you received unemployment during that time?

The same for other expenses: telephone, health insurance. All expenses for the whole year.  But are you allowed to do this if you were on unemployment for part of the year?

(Of course, you would only subtract it from income received from your self employment income, not towards unemployment insurance payments.)

[ColeenD3]

No. The following reasons exclude it.

• You must regularly use part of your home exclusively for conducting business. You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. If you use it the months you had no business income, it is disqualified.

• Additionally, if your qualified business use was less than 15 days in a month, you must use -0- for that month. If you had a partial month of business that exceeds 15 days, then you can include that month.

[Get_it_Right]

Thank you for that information.

What about other business expenses that would appear on schedule C?

Health insurance for self employed? 

Etc?

[ColeenD3]

Yes, other business expenses count, but I'm not sure what expenses you would have apart from insurance if the business was not producing income.

Self-Employed Health Insurance Deduction

You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2020, even if the child wasn’t your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

One of the following statements must be true.

• You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040).
• You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), box 14, code A.
• You used one of the optional methods to figure your net earnings from self-employment on Schedule SE.
• You received wages in 2020 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.

The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.

• For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual.

[Get_it_Right]

Can you please elaborate what you mean by "count"?

There are recurring bills and expenses that continued through periods when receiving unemployment insurance.  If it was a  year previous to 2020 when no unemployment insurance was received, expenses during those periods would be deducted throughout the year as gig worker was still in business: doing research, networking, creating projects for future presentation, etc . The confusion for 2020 is, when gig worker was not getting paid for clients, gig worker was allowed to receive unemployment. 

Are you saying that these expenses can or can not be expensed throughout the year (keeping in mind the availability of unemployment insurance in 2020)? 

[ColeenD3]

The bottom line is, was there a business during these months. If there was a business, you can take deductions. If there was no business, no home office. 

[Get_it_Right]

Understood about the home office.

But the rest of my question...?

Anyone?

[AnnetteB6]

If you continued to run your business during the year, then you can claim your ordinary and necessary business expenses that you incurred. 

This is the case even if you had no income during part of the year other than your unemployment compensation.  This is no different than any other year as long as you are continuing to operate your business in an attempt to make money.  If you stopped business operations completely while you were collecting unemployment, then you could not claim business expenses because you were not in business at that time.

@Get_it_Right

[M2J]

Did you get a satisfactory answer to this? I am confused too. My self employed home office where I see clients was closed due to covid from March through the rest of 2020. During that time I collected PUA unemployment income and did not have any earned income. My business is still "in business" but was closed temporarily. I still had the expenses of keeping a home office prepared for reopen at any time as soon as it felt safe. I don't know how to answer the question of how many months I used the office at least 15 days of each month. 

[ctx192021]

I could use more information that addresses this. 

[ctx192021]

So, the expenses usually include home office. Are you saying that home office CAN be deducted/expensed if taxpayer is "continuing to operate your business in an attempt to make money" as opposed to ColeenD3 who said you can not expense your home office  ("If you use it the months you had no business income, it is disqualified.")?

[Cynthiad66]

IRS link to who qualifies for the Home Office deduction.  Use this link to determine if you qualify for the deduction.

Home Office Deduction