Can self employed bisiness expenses be taken with no income?

[Melaine · Accepted solution]

Yes, while you may not have made any profits, if since you have expenses, you may want to file a Schedule C to claim them.  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 to guide your decision; IRS Publication 334  It will provide you with advice on filing if you have any expenses, such as the cost of a business license. 

Also, if you have another source of income that could off-set the loss in your business  so that you pay your tax at a lower rate.  Example; you receive a W2 from your job for $65,000 with no other income or adjusted gross income deductions, $65,000 would be your Adjusted Gross Income. However, if you had a business loss of $3,000 then your Adjusted Gross Income would be $62,000 that will lead to a reduction in taxable income.  

[142429]

ceci 

[wyzzkid101]

Are there any exceptions to reducing your AGI from W2 income with business expenses? For example, if I have $62,000 of W2 income, and I just started the business and have not made any income by the end of the year, can I deduct the purchase of a car of $22,000 to make total AGI $40,000?

[Critter-3]

A 179 deduction can only be taken if you have positive earned income  and if you take the bonus depreciation deduction with no income on the Sch C then put your duck in a row since you are inviting an audit... be prepared to defend your choice. 

[wyzzkid101]

Does the income amount matter? Let’s say income was less than $500. 

[Critter-3]

If the income is $500 then the 179 deduction is limited to $500.  I really think you should seek guidance from a local tax pro who can educate you in the options available to you and the consequences of taking the 179 deduction and bonus depreciation. 

[VolvoGirl]

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[Opus 17]

If you start a business and have only startup expenses and no income, you don't report it on your tax return at all.  Your report your startup expenses in the year you first have operating income.  Your startup expenses are then either expensed, or amortized over 15 years, or both, depending on the amount and nature of the expense.  

So no, you can't purchase a business vehicle and use it to reduce your non-business income if you don't have any other business income. 

[shkcpa41]

What about professional training/education expenses incurred through a Master's program to better prepare yourself to open a private medical related practice in 1-2 years down the road?

[SweetieJean]

Expenses to enter a new profession are not deductible.

You might be able to claim the Lifetime Learning Credit, though.

[xmasbaby0]

@shkcpa41 

https://ttlc.intuit.com/community/credits-and-deductions/help/what-expenses-qualify-for-the-lifetime...

https://ttlc.intuit.com/questions/3262984-who-is-eligible-for-the-lifetime-learning-credit

[Opus 17]

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@shkcpa41 wrote:

What about professional training/education expenses incurred through a Master's program to better prepare yourself to open a private medical related practice in 1-2 years down the road?

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Education and training to enter a new profession are not deductible, either as personal expenses or as start-up expenses of a new business.  Deductible business expenses are "ordinary and necessary" expenses of running the business, but do not include training to be able to start a new business.  Other startup costs (buying equipment and so on) might be deductible start up costs according to the rules for treating start up costs.

Personal education expenses might be eligible for education tax credits.  

[Dumoch126]

How about if I have no income but pay dues to keep my professional license and health license and pay business insurance

[Critter-3]

If you have an ongoing Sch C business and you are actively trying to make money but did not have any income then you can still deduct normal and customary business expenses on a Sch C without income however the IRS could question this so be prepared to defend your position.