Schedule C Losses During COVID for 2020 & 2021

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newcollegeman
Posts: 55
Joined: Thu Mar 02, 2017 12:16 pm

Schedule C Losses During COVID for 2020 & 2021

Post by newcollegeman »

My Schedule C business will show a loss in 2020 & 2021, due to the impact of COVID. Reported profit in the years before.

I’m guessing that my 2 years in a row of losses will not be a great shock to the IRS. Misery loves company & I figure that I’m in good company on this one due to the pandemic.

My profits are not great—only a side business with less than $20k/year usually, but it’s important income for our family.

Does the “profitable for 3 of 5 consecutive years” rule work in my favor on this?

Appreciate any reassurance or correction,

newcollegeman
MrJedi
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Joined: Wed May 06, 2020 11:42 am

Re: Schedule C Losses During COVID for 2020 & 2021

Post by MrJedi »

The 3 of 5 is not a hard and fast rule. It's one of many guidelines used to determine if they think you are a hobby and not business. If they end up using this rule on you (I would think doubtful due to many unprofitable businesses during COVID as you mention), you can still prove that you are a legitimate business in many other ways. If you are indeed a legitimate business, I don't think you'll have an issue at all. Having years of 20k profit makes that somewhat obvious, in my opinion.
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HueyLD
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Joined: Mon Jan 14, 2008 10:30 am

Re: Schedule C Losses During COVID for 2020 & 2021

Post by HueyLD »

I suggest that the OP read these two official publications for his own benefit:

https://www.law.cornell.edu/uscode/text/26/183

https://www.irs.gov/pub/irs-utl/irc183a ... profit.pdf
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