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Daycare Business with a Schedule "C" Loss

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    #1

    Daycare Business with a Schedule "C" Loss

    I have been preparing the returns of a lady 71 years old that has operated a daycare business out of her home.
    She has downsized her business greatly over the last few years by intent & she plans to continue her business for only 1 or 2 more years.
    This year, for the first time, her "C" expenses will slightly exceed her gross revenues - by maybe $1-K or so.
    Customer says she'd rather not show a loss & would prefer to just not use some of the out of pocket cash expenses that would create the "C" loss.
    Haven't worked with businesses (other than this daycare case) over the years and am a little unfamiliar with the NOL rules.
    Are there any potential complications for her if she does not claim all cash expenses on her "C" - just to avoid the loss ?
    Thanks for comments

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    #2
    A Schedule C loss is not the same thing as a NOL. See worksheet in Pub 536 for how to calculate if there in a NOL. Normal years I don't see how it would matter to not claim all expenses, but with EIC this year that may not be true.

    Comment

      #3
      What kathyc2 said. Typically, business losses must exceed taxable income as a condition of having an NOL, so her other income, such as taxable Soc. Sec. retirement plan distributions, and non-business capital gains must also be taken into account. Unless she has very little other income, a small business loss will most likely not lead to a NOL.

      It is pretty easy to show that a business expense is not deductible, for example if you don't have a valid mileage log for auto expenses, or you can't show that an expense was "ordinary and necessary". It's a big no-no to manipulate Schedule C amounts in order to get EIC, but you can also just tell your software that taxpayer is not eligible for EIC and thereby leave it out of the return.
      "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

      Comment

        #4
        In this case, EIC will not be a factor. Her husband (MFJ) has a $75-K W2. They both receive Soc Sec and have no dependents.
        Their AGI is just under $100-K.
        Thanks for setting me straight on NOL not being relevant.

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