Schedule C-Inactive buiness question

[ksherlock]

Hi all,

I have a client who has previously reported a small sole-proprietorship construction business. This year he did not do anything with his business and received all of his income as an employee of another construction business. He wants to maintain his business and has kept up to date with his state fees, but we're not sure if we should be filing a schedule c this year. If we didn't file a schedule c he would have to forego some depreciation but it's not a significant amount.

What would you folks recommend? Thanks!

[Ken]

Schedule C inactive business

I would go ahead and file the schedule C and let him take his depreciation and any other expenses he has. A business doe's not have to show a profit every year. It also depends on his intentions. Is he planning on ever working in his own business again or is he going to work for wages? If he plans on just working for wages from now on then I would tell him to close down his schedule C business. Just depends on his intentions.

[ksherlock]

I would go ahead and file the schedule C and let him take his depreciation and any other expenses he has. A business doe's not have to show a profit every year. It also depends on his intentions. Is he planning on ever working in his own business again or is he going to work for wages? If he plans on just working for wages from now on then I would tell him to close down his schedule C business. Just depends on his intentions.

Well he wants to keep his options open in case his new job doesn't work out. I was thinking that it he keeps at his new work for a couple years the IRS could try to challenge whether his schedule c represents a business or a hobby. Not a headache either of us would want to deal with. What depreciation he has is coming from his shop, which is just a little shed next to his house with some woodworking tools in it.

[BOB W]

Schedule C business can stop and go anytime. There is no requirement to file like other type of entities. It may be difficult justifying taking a loss based on depreciation and maintaining a workshop. Are you sure that he didn't do any private small jobs?

[AZ-Tax]

I see this quite often and it can make logical sense.

I see this quite often and it can make logical sense. Your client is tying to go on his own but the new start up business money is not there yet. If it was I me I would go ahead and advise my client to file Schedule C but also caution your client he needs to soon turn a profit preferably in year 2 especially if he is still hanging on to his salary job.

[Roland Slugg]

This is covered somewhat on p.7 in IRS Pub 946 under the heading "Idle Property" et seq. I say "somewhat" because it isn't clear what to do with business property when the business is discontinued or suspended, but the property is not the type that can be converted to personal use.

In the absence of evidence to the contrary, I would be inclined to continue depreciating the assets at least for one year after the business is suspended. After that it's probably a year-by-year judgment call.

[ATSMAN]

I had a similar situation with a truck repair business last year. Taxpayer was barely making it on his own so last year he got a W2 job and make around $70k in that. The repair business was basically dormant though he had depreciable assets. We filed a Sch C because according to him he was still open for business, had his DBA active and paid registration and license fees to the county. I did advise his of the 3 out of 5 year rule.

[Roland Slugg]

I did advise his (sic) of the 3 out of 5 year rule.

If you don't mind saying, what advice did you offer about that?