Client received unemployment in 2009. One of the exceptions to the IRA early withdrawal penalty is paying for health insurance in the year of receiving unemployment or in the following year. There is a caveat that you can't utilize this exception beyond 60 days after returning to the work force. My client has two very small Schedule C businesses going since he became unemployed. In 2010 they resulted in a $900 loss. As he may need to tap his SEP/IRA soon I am looking for opinions as to whether these small businesses would constitute returning to the work force. I would assume they don't.
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Not sure if this is where you shoudl go on this question, but maybe the issue should be what months and in what amounts any income was actually generated (irrespective of when expenses were incurred).
Might this also be an opportunity to reconsider whether what we are calling Schedule C activity might actually be a hobby..???"The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith
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