Expenses Incurred - No Income

[Burke]

Have a client with professional degree, retired with pension and social security, but normally receives both W-2 and 1099 income for part-time gigs. This year, no income but still has travel expense of various job-related conferences amounting to over $4k. Still deductible?

[Kram BergGold]

Depends

If he was trying to earn money, if he was open for business then take the deductions. If he was not open for business then do not take deductions.

[Burke]

He was available for assignments throughout the year, but only one was performed -- in November, and they did not pay him for it until just recently. The travel I was concerned about was an international conference which he attends every year or so, as that was the biggest expense with airfare & lodging. And I usually prorate expenses between 2106 and Sche C, but no income this year, so I guess 2106, which will include other expenses besides travel, such as dues, subscriptions, business license, etc.

[TAXNJ]

He was available for assignments throughout the year, but only one was performed -- in November, and they did not pay him for it until just recently. The travel I was concerned about was an international conference which he attends every year or so, as that was the biggest expense with airfare & lodging. And I usually prorate expenses between 2106 and Sche C, but no income this year, so I guess 2106, which will include other expenses besides travel, such as dues, subscriptions, business license, etc.

Sounds like client had a bad year waiting months to get paid but yet incurred business expenses. If cash basis how do you prorate prior year travel expense?

As long as client has a profit motive and not a hobby and meets the IRS code about what you know about clients business expenses and can support client's position, it may be deductible.

[Kram BergGold]

2106 or C

If the 2016 income will be reported on a W-2 then take all 2015 expenses on 2106. If 2016 income will be on Schedule C then tale all expenses on 2015 Schedule C.

[TAXNJ]

If the 2016 income will be reported on a W-2 then take all 2015 expenses on 2106. If 2016 income will be on Schedule C then tale all expenses on 2015 Schedule C.

Will you share difference on how recognizing prior year expenses by cash basis W-2 the following year vs Schedule C in year of expense ?

Thanks

[Burke]

Good point, Kram. I checked some prior years' returns, and this particular one pays him on a W-2 as an employee. So will take on 2106. Tks.

[TaxGuyBill]

I can't find anything in the 2106 Instructions or Publication 529 that says this, but I have stuck in my head that a 2106 deduction is limited to the amount on the W-2.

Did I just imagine this, or can anybody find something on that?

[Burke]

Well, that was my concern too and what prompted my post. The only thing I can find regarding that is the Office in Home and/or 179 deductions, which are limited to earned income. So that's out this year.