Small Business Hobby Status

[skck8287]

In 2022 had no Illinois LLC income and will be 3rd consecutive year of loss for LLC (5th total since inception 2015. Do I now need to report LLC as a hobby loss? Which Turbotax version do I use? IRS regs imply LLC income/loss must be reported every year even if can't be deducted under hobby loss rules. We will be using standard deduction.

[JBedford]

Hi, @skck8287 , thanks for the question! Since you didn't state otherwise, I'm assuming that this is a single-member LLC that you have been reporting on your personal tax return as a sole proprietorship; that is to say, that you have not chosen to be taxed as a corporation. Yes, it is very likely that the IRS will consider this activity a hobby after three consecutive years of losses. I'm not clear if the business had no income at all, or just no IL-sourced income. If the business had no income and no deductible losses, then it need not be filed if my above assumption is correct. A single-member LLC is what's called a "disregarded entity", meaning that as far as the IRS is concerned, your filing requirements are no different than any other sole proprietor. 

Hope this helps! 

[skck8287]

Thanks. It is a sole proprietorship. This is first year of no income. But always has expenses (website, LLC renewal, etc). To be clear. Do I need to file LLC as hobby and report expenses (losses) but not deduct them? How do I do this using Standard Deduction? Can I stop using Turbotax Small Business and not file Schedule C? Thanks.

[JBedford]

You do not need to file the hobby loss and you do not need to file a Schedule C, so you should not need to use the Self Employed/Home and Business version of TurboTax. For tax purposes you are treated as a sole proprietorship, the fact that you're operating as an LLC is irrelevant to the IRS, so there is no requirement for you to file with no income and no deductible expenses. And you can take your Standard Deduction as normal. Hope this helps!