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I am a sole proprietor. I stopped doing business. What do I need to report on my schedule C to close the business?

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February 19, 2024

As a sole proprietor closing your business, you'll need to accurately report your final year of operation on Schedule C (Form 1040 or 1040-SR), "Profit or Loss From Business." Here are the key steps and considerations for completing your Schedule C to close your business:

1. Final Income and Expenses: Report all income and expenses incurred during the final year of operation. This includes all sales, services income, and any other business income. Also, include all business expenses you're eligible to deduct.

2. Inventory: If your business had inventory, you need to account for it correctly. Report the cost of goods sold (COGS) and make sure your ending inventory is accurate. If you're disposing of remaining inventory, the manner of disposal (sale, personal use, donation) may affect your final tax calculations.

3. Depreciation: Report the depreciation for business assets for the portion of the year they were used in the business. If you're disposing of business assets, you may need to calculate and report any gain or loss on the sale or disposal of these assets.

4. Business Use of Home: If you claimed a home office deduction, calculate the deduction for the final year based on the portion of the year the home office was used for business.

5. Vehicle Expenses: If you used a vehicle for your business, report the business portion of vehicle expenses for the final year.

6. Indicate Business Closure: On Schedule C, there isn't a specific box to check to indicate that you're closing your business. However, it's important to report that this will be the final Schedule C for this business. You can include a statement with your tax return indicating that the business has ceased operations.

7. Suspended Passive-Activity Losses: If you have any suspended passive-activity losses that relate to the business, you may be able to deduct them in the final year of business. Review the rules regarding passive-activity losses to determine eligibility.

8. Final Year Considerations: Ensure that you've addressed any final year considerations such as collecting outstanding receivables, paying off business debts, and handling any remaining contractual obligations.

9. Recordkeeping: Keep detailed records of your final year's business activity, including income, expenses, asset sales, and inventory disposal. These records are important for both completing your final Schedule C and for any potential future inquiries from the IRS.

10. Consult a Professional: Given the complexities involved in closing a business, including tax implications and potential legal considerations, it's advisable to consult with a tax professional or accountant. They can provide personalized advice and ensure that you've met all requirements for closing your business from a tax perspective.

Remember, the information provided here is based on the context information you've given and general guidance. Tax laws and regulations change, and individual circumstances can vary, so professional advice is crucial.

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Other Tax Discussions & Commentary
It is my understanding per the big book of taxes that we can deduct the cost of goods sold for hobbies or not for profit losses. In the above example in number 5, wouldn't we report $400 on schedule 1, line 8?
July 21, 2024

I apologize for any confusion. Under the current tax law, hobby expenses, including the cost of goods sold (COGS), are not deductible. However, let's clarify the reporting process for hobby income and expenses:1. Report Hobby Income: - All income earned from a hobby must be reported on your tax return. This is done on Form 1040, Schedule 1, line 8 (Other Income).2. Cost of Goods Sold (COGS): - While you cannot deduct hobby expenses, including COGS, from your taxable income, you should still keep detailed records of these expenses for your own records and in case of an audit.3. Filing: - On your tax return, you will report the total income from your hobby on Schedule 1, line 8. You cannot deduct the COGS directly on Schedule 1.4. Example: - If you earned $1,000 from your hobby and the cost of goods sold was $600, you would report the full $1,000 as income on Schedule 1, line 8. You cannot deduct the $600 COGS from this amount.The key point is that under the Tax Cuts and Jobs Act of 2017, for tax years 2018 through 2025, hobby expenses, including COGS, are not deductible. Therefore, in the example provided, you would report the full $1,000 as income on Schedule 1, line 8, without deducting the $600 COGS.If you have any specific questions or unique circumstances, it may be beneficial to consult with a tax professional to ensure compliance with IRS regulations.
Bart, true the BB says the expenses are deductible as an itemized deduction, the problem is they are deductible as a tier 2 misc deduction which are suspended by TCJA....Lee
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Bart Ketterling, EA

MARTIN, KETTERLING & ASSOCIATES

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Anh Nguyen

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The 2025 Fiscal Year Budget, as outlined in the provided excerpts, focuses on several key areas to support and advance the United States' domestic and international priorities. Here's a summary of the main points covered:

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