Reporting Schedule C Losses

Schedule C is used to report profits and losses form sole proprietorship businesses. It is the most audited of all the tax forms! In order to claim losses based on a Schedule C business, a taxpayer must first prove that the activity is engaged in with a profit objective. Factors to consider are whether the activity is carried on in a business-like manner, e.g. is there a business plan in place and does the taxpayer co-mingle business and personal funds. Also how often does the business show a profit and how much is shown? One must show a profit at least one year out of every four or five years. If you never show a profit over an extended period of time, your Schedule C losses will be denied. In that case they are called “hobby losses” by the IRS and the activity is not recognized as a business.