I stopped selling Lularoe (clothing direct sales) and have no business income/expenses/wholesale purchases to report for 2018. How do I claim this on my taxes?

[TaxGuyBill]

Did you have any "assets" that you were depreciating?

In prior years, were you reporting your 'stock' of clothing under "Inventory" (Cost of Goods Sold) or were you reporting it elsewhere?

What did you do with the left over clothing?

[cortneejane88]

I did not have any assets that I was depreciating.
I have been reporting stock as inventory.
I literally haven't been doing anything with it. I have sold (less then 5K) some via SQUARE. I have giving things away to friends and family.

[sheppardtv]

my daughter has given up trying to sell her remaining lularoe inventory.  can the remaining inventory be reported as a loss?  Can it be depreciated?  Or, is it just reported as removed for personal use?

[Carl]

Basically, there's four things that need to be covered in order for the IRS to consider a SCH C business as "no more".
 - All assets must be disposed of. They can be reported as sold (if they were in fact sold of course), removed for personal use, destroyed, stolen, given away, removed for personal use, etc.
 - All Vehicular use in the business, including your personal vehicle used less than 100% for the business, has to be dealt with. Generally a vehicle is not "disposed of" the same way the business is and it's common for the vehicle to be shown as "removed for personal use". But other options are totaled/destroyed, sold, given away and a few other obscure things.
 - The EOY Inventory balance for the final year must be zero. The most common way this is achieved is for the business to report all remaining inventory as "removed for personal use", if that inventory can't be sold (even at a loss) prior to closing the business. But other possibilities are to report the inventory as destroyed or stolen. The latter happens most often when a business is destroyed by fire or hurricane for example, and the owner decides not to reopen.
 - All outstanding debts owed by the business, as well as those debts owed *to* the business need to be accounted for. If the business owes a debtor money and just can't pay it, then the SCH C business owner gets the fantastic opportunity of paying it out of their own pocket with funds from other sources if possible. If not possible then the debtor needs to forgive the debt with a 1099-C or the business may have to file bankruptcy.
If the business is owed money by a client or vendor then the business needs to either collect it, or else write it off as uncollectable. If it's a large amount, the business may want to issue the debtor a 1099-C. Generally the 1099-C is only necessary if the business was using the accrual method of accounting, instead of the cash method. If the debt owed to the business was accrued in a prior tax year and the business already paid taxes on that money in that prior tax year, then the 1099-C would most likely be called for in order to "deduct" the debt from the current year's business income.

[sheppardtv]

Thank you.  That is helpful.  I’ll report the inventory as removed for personal use.  She can then donate to charity during 2019 and claim that as a charitable donation on her 2019 taxes.  Thank you.

[Carl]

That'll work. Just be aware that charitable donations are an itemized deduction on the SCH A. Until the total of your itemized deductions (not just donations either) exceed the standard deduction, the itemized deductions make no difference in your tax liability. With the standard deduction practically doubled now, it will take quite a bit of itemized deductions too.
Also, some itemized deductions are limited to a maximum amount for the year.

[sheppardtv]

ahh, yes, that is true.  She may not reach the level to have itemized deductions.  Thank you so much.  I really appreciate the information.

[TaxGuyBill · Accepted solution]

If you have sold $5000-ish, you DO have income, and need to report the business income.

You need to report your year-end 'stock'/Inventory, and indicate how much you withdrew for personal use (giving away to friends and family).

If you have COMPLETELY finished selling things, and will ONLY give away items in 2019 (no more sales, no matter what method), then you would indicate your entire Inventory is withdrawn for personal use, and you ending Inventory would be $0.

If you may still try to sell more in 2019, you need to enter your year-end Inventory, and then file for the business again for 2019 for any sales.

[Carl]

Closed SCH C Business

You need to report your business as "sold or otherwise disposed of".

Start working through your business "as if" you still own it. On the 2nd or 3rd screen in select the option for "I sold, closed or otherwise disposed of this business in 2017". If prompted for the date, enter the day after you last day of business in 2017.

If your business had no income in the tax year, you can not leave the business income section blank. You 'must' enter a digit, even if that digit is a ZERO.

If you had no business expenses, then you can leave that blank and don't even have to work that section through, if you don't want to.

If your business carried an inventory, the end of year (EOY) inventory must be zero. If it's not, then in the COGS section (Inventory/Cost of Goods Sold) indicate that you removed the entire remaining inventory for personal use. That effectively makes your EOY inventory balance, zero.

If your business had assets, then you must show the disposition of those assets. In the Business Assets section work through each individual asset on at a time, and select YES on the screen, "DId you stop using this asset in 2016?". Then on the next screen, "Special Handling Required?" if you sold the asset, select no and you will be prompted for your sales information on that specific asset. If you did NOT sell the asset, click the YES button. You must do this for each individual asset listed, even if it's already fully depreciated.

If you claimed any vehicle expenses in your business at any time from the day you opened your business, then you must most show the disposition of that vehicle. Work through the Business Vehicle Expenses section and indicate that you stopped using that asset in the business, when prompted. Then show your disposition of that vehicle. Most likely, you'll indicate that it was removed for personal use.

Once you have done all the above, that will make the 2017 tax year the last year you will file a SCH C for this specific business.