Need to file?

[RitaB]

Hey now

At the risk of repeating myself needlessly, I will again point out that the answer to the OP is right there in the instructions for F-1040, under the heading "Do You Have To File."

Regarding filing threshold, you might use Line 7 of Sch C, yes.

But you don't know that they will never need that NOL. Do the return and get paid. I would never advise a client not to file. Especially one with a business.

https://www.irs.gov/publications/p554/ch01.html

I provided a link to the filing requirements from Pub 554. I probably should have said, "Hey, here's the directions." Or skipped my advice in the second sentence, which was intended to be helpful, but unsolicited. (Advice that was prompted by Super Mom telling us there was a business loss that she didn't think would be needed in the future.)

I love you as well. One of the best. But I'm no slouch.

[New York Enrolled Agent]

NYEA gave correct Code references, but those alone are not helpful if the person doesn't have access to the Code. (We all do, but some may not realize it or be comfortable reading it.) Then there are all the references to 1099s which, again, were not mentioned in the OP.


SuperMom: You didn't give enough information in your OP for anyone to give you an authoritative reply.

Roland - you are one of my top 3 favorite (and knowledgeable) posters on this Board. I read everyone of your posts. So please take this post with that in mind. Posters on this board are compensated by taxpayers to prepare tax returns. To suggest that these practitioners should not be familiar with the law (i.e. the Internal Revenue Code) is disappointing. Would any of us suggest going to a lawyer who doesn't know the law? I fail to see the difference.

I would also ask you to read post #8. SuperMom has never provided the requested information - I find that distressing.

[JohnH]

Great analysis, Roland. You summarized 17 replies very well.

The reason I mentioned the SOL is simply because I am always extremely reluctant to tell anyone they don't have a filing obligation. I give them the facts and let them make their own decision. If they insist that I take some responsibility for the decision, I always recommend filing, primarily because of the SOL, and I tell them my reason is that I don't want to be in the crosshairs if something/anything goes wrong.

[Roland Slugg]

Wow. 17 replies (so far), and not a single one that actually answered the OP. Some replies make assumptions not contained in the OP, and many others give incorrect information. One person mentioned the SOL, then another thought he must have meant NOL, and then others replied to that as if it were, in fact, the case. NYEA gave correct Code references, but those alone are not helpful if the person doesn't have access to the Code. (We all do, but some may not realize it or be comfortable reading it.) Then there are all the references to 1099s which, again, were not mentioned in the OP.

Let me see if I can post something that helps and actually responds to the original question posed:

SuperMom: You didn't give enough information in your OP for anyone to give you an authoritative reply. The filing requirements are spelled out in the F-1040 instructions. See "Chart A" on page 8, and be sure to read the definition of "Gross income" at the bottom of that chart. It says that for purposes of determining the T/P's gross income to include the amount on Line 7 of Schedule C. It also says how much, if any, of social security receipts to include. In your client's case, one or both of them must be close to or over 65, so the "gross income" threshold is $23,100 (assuming MFJ) ... a little less if one or both are less than 65. If your clients' gross income is less than the above amount, or the amount on the applicable line on Chart A, then they are not required to file a return. (Despite that, be sure to review the list in Chart C to see if any of the other filing requirements apply.) The reason no one can answer your Q is because we don't know if your clients' business had gross income ... Schedule C, Line 7 ... of $5,000 or $50,000. Either way the business could still have had an overall net loss, but in one case the people probably don't have to file a return, and in the other case they definitely do.

The people who said they have to file if their gross receipts are over $400, because of the SE tax are, well, simply wrong. That $400 threshold refers to a person's net earnings from SE, not his gross receipts. Also those who said they should file if they received 1099 forms are also incorrect. The receipt of 1099s for someone's business sales has no bearing on a person's filing requirement.

Now, are there times when a taxpayer may not be required to file a return but should file one anyway? Absolutely! In fact the receipt of forms 1099 reporting significant payments is one of them. In that case the purpose of the return would be to prevent the IRS from sending a CP2000 or similar notice asking about a missing return. Another is if the T/Ps made estimated tax payments. A return must be filed to get that money back, apply some to the next year, or a combination of both. Certain elections require the filing of a return. There are many others. The OP didn't mention any of these things, so I assume they don't apply in this particular case. The person who mentioned the SOL did make a good and valid point, but I would temper that with the likelihood of it ever becoming important. Gross sales of $5,000 and expenses of $8,000 ... probably not. Gross sales of $20,000 and expenses of $21,000 ... quite possibly.

At the risk of repeating myself needlessly, I will again point out that the answer to the OP is right there in the instructions for F-1040, under the heading "Do You Have To File."

[FEDUKE404]

No problem

no 1099---avon sales

Well, that settles things.

Avon and Mary Kay folks never have any income to report.

FE

[Rapid Robert]

I automatically file Schedule C box 7 when there is a 1099 for any amount especially $400 or more. [...]Thus "I" require a return to be filed.

That doesn't answer the original question. Nothing was mentioned about 1099 forms, let's assume there are none. What if the business is showing a loss and the only other income is Soc Sec, does a return "need" to be filed, or do you require one of your clients?

[BOB W]

Maybe in your part on NY you don't protect your clients from IRS notices. I automatically file Schedule C box 7 when there is a 1099 for any amount especially $400 or more. Those 1099s will cause an IRS notice for income tax, if required, and SE tax. So I am the one limiting notices down the road for my clients. Thus "I" require a return to be filed.

[New York Enrolled Agent]

But if the Sales on a 1099 shows $400 or more a return must be filed because of the SE threshold of $400.

Sorry, but unless the Ronkonkoma, LI area has different rules, there is NO requirement to file a tax return, merely because there are $400 in sales.

What the IRS knows or likes or whatever does not determine the requirement to file a tax return. The Internal Revenue Code does that. I would suggest you read IRC §§ 6012(a) and 6017 - they give the basic rules for to determine if a return is required to be filed based the facts posted in this thread.

[Super Mom]

no 1099---avon sales

[BOB W]

IRS does not know what the earnings are unless a return is filed. But if the Sales on a 1099 shows $400 or more a return must be filed because of the SE threshold of $400. On the other hand, if there is no 1099 issued then the IRS does not know of the filing requirement to satisfy SE tax.

[New York Enrolled Agent]

It is net earnings of $400 or more, right?

Yes

But the net earnings requirement doesn't fully answer the filing requirement question. YOU need to answer the questions I gave to you.

The mere fact that the taxpayer had a loss at the end of the Schedule C does not establish whether or not they have a filing requirement. YOU need to provide the "numbers".

[Super Mom]

Gross Proceeds?? Do you mean sales or gross receipts? If yes, then you are not correct. If no, what do you mean by gross proceeds?

It is net earnings of $400 or more, right?

[New York Enrolled Agent]

If the gross proceeds are $400 or more the T/P must file a return per IRS.

Gross Proceeds?? Do you mean sales or gross receipts? If yes, then you are not correct. If no, what do you mean by gross proceeds?

[RitaB]

Regarding Filing Threshold

What I am reading from the IRS says net self employment earnings of over $400, that would be after COGS right?

Regarding filing threshold, you might use Line 7 of Sch C, yes.

But you don't know that they will never need that NOL. Do the return and get paid. I would never advise a client not to file. Especially one with a business.

https://www.irs.gov/publications/p554/ch01.html

[BOB W]

If the gross proceeds are $400 or more the T/P must file a return per IRS. Then on the return it will show a profit or loss. If there is any activity in the business a return should be filed regardless. A final business return should be marked if the business is ending.