Schedule C is the most audited of all the tax forms! In order to claim losses based on Schedule C a taxpayer must first prove that the business activity has a clear 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.  Also, does the taxpayer co-mingle business and personal funds. In addition, a very important factor is how often the business shows 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.  Your business will be designated as a hobby by the IRS and your losses will be non-deductible hobby losses.