Stop reporting Schedule C after 2 years

[abs124]

If someone with high W2 income filed taxes as married filing jointly and included Schedule C (as sole proprietorship) on their taxes last 2 years—reported no income, but deducted some small losses as part of setting up the business. It was part of launching a startup of creating a social media business, but failed to monetize and have no intentions to continue on with this business as the potential reward is not worth their time.  They are thinking of starting a new business in real-estate with their spouse this year.  So, last year (2022), they were fully engrossed in their W2 job and there virtually was no activity on the earlier business for which they filed the Schedule C.  

Can they just stop including Schedule C going forward, or would doing so trigger an IRS audit, which is not fun?  What other options do they have - such as continue reporting Schedule C with no income and no losses?

[JulieS]

Yes, you can and should stop filing your Schedule C if you have no self-employment income or expenses. 

There is no other option, you aren't supposed to file unless you are actively trying to earn self-employment income and have income and/ or expenses. 

Stopping your Schedule C filing will slightly reduce your audit risk, and definitely will not "trigger" an audit. 

This is how to remove your Schedule C and related forms from your return in TurboTax:
 

1. Open your return and scroll down to Tax Tools on the bottom of the left side menu.
2. Select Tools.
3. Click on Delete a form (third on the list at the bottom of the screen).
4. Find Form Schedule C on the list of forms.
5. Click Delete to the right.
6. Confirm your Delete.
7. Click Continue in the lower right. 
8. Click Continue with my return.

[abs124]

Thanks for taking the time to reply to this thread.  Means a lot to me. 🙏

I spoke with a local CPA this morning for a brief consultation, and he said that I cannot remove Schedule C until I formally dispose the Sole Proprietorship/LCC.  If I remove Schedule C, that is riskier and it could flag an IRS audit.  Instead, he said I continue including Schedule C with $0 income and $0 loss.  He then suggested that I instead try to repurpose my other business to the new business I am trying to create this year.  Please advise whether I should remove Schedule C all together, OR include it with $0 income and $0 loss. 

Thank you!!

[AbrahamT]

Either way is fine. If they  don't have more activity from the business, then it is what it is. Just top clarify, when do do expect to dispose this sole proprietorship/LLC anyway?  Maybe, the CPA  thinks that they may reconsider and not dispose of the single member LLC after all. In that case, you might be better off to keep the Sch C intact for future potential activity.

[abs124]

I don’t even know what it means to dispose off the Sole P.  I filed my Schedule C as Sole P.  So, should I just file Schedule C with $0 income and $0 loss for 2022, and then this year work with a CPA to repurpose it for the new startup?

[DawnC]

Disposing of the business can mean selling it or just abandoning the business activity.    Since you are unclear if this Schedule C will report business activity next year or not, just leave it and report no income or expenses for 2022.   If the new business is in the same industry and has no start-up costs to amortize, you can use the same Schedule C next year.   If you need to create a new Schedule C next year, then you can dispose of the business on the old Schedule C then.   

Oftentimes, closing out a business doesn't require any extra steps other than indicating the business ceased activity during the year - but sometimes, there are extra steps that need to be taken - if you have assets on the books or employees, for example.   See Closing a Business.   

You can "dispose" of a business in any of the following ways:

- Sale
- Exchange
- Retirement
- Abandonment
- Destruction
- Death

On the screen that asks if you started or disposed of your business in 2022, select Neither of these apply.   There is a link above referencing start-up costs which may apply to your situation.   From that link ''Timing matters, too. “Startup costs are only deductible if your business does indeed start up,” says Capelli. “And they have to be incurred during the planning and development phase of your business. Otherwise, after that, they become operating expenses.” The flip side to this is that even though your business isn’t operational yet when you incur startup expenses, you can deduct them or begin to deduct them in your first year of business.'' 

[abs124]

Thank you!  Very helpful.  If I dispose off a Schedule C, am I liable to pay back the startup cost that deducted in prior years?  

So, just not including Schedule C is NOT an option, right?  I believe Julie (above) recommended that I can also just not include Schedule C if I don’t intent to carry that along any more; when is that a valid Tax action?

[AmyC]

1. No. Start up costs should have been limited to allowed amounts by the computer. However, if you took sec 179 on any assets, you will need to recapture excess depreciation.

2. No need to file Sch C if it does not affect your income and tax. If your LLC were a corporation or partnership, you would have to file a final business return. This is not the case for a Sch C which is generally a sole proprietorship. People pick up odd jobs, start businesses, and report them as needed. Sch C is linked to your personal income and information. 

3. If you have nothing to recapture, no income, no employees were paid, nothing to report, then you do not need to file the Sch C as it does not affect your taxable income.

The instructions for Sch C state:  We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

Reference: About Schedule C (Form 1040), Profit or Loss