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W2 for part of year but claim Sched C deduction?

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  • W2 for part of year but claim Sched C deduction?

    Hey guys, long time reader, great forum, hope I can get some tax related feed back...

    So I was paid W2 as an employee dentist for up until September of last year, after that I had been simultaneously exploring the option of becoming a practice owner, and/or a better employee position else where. Let's just say neither option materialized and in those last 3 months I've had no income and accrued some expenses trying to decide the next step of my career.

    Since I was only an employee til September, I'm wondering if I can claim to be a Sole Proprietor for the last 3 months of the year and then use Schedule C to claim business expense deductions  last 3 month of the year that I wasn't an employee. From my readings I think I can, I would just have to file Schedule SE too even tho I didn't have any income.

    For what it's worth, I was planning on deducting individ health ins premium, travel expenses for interviews, and unfortunately a casualty loss on my car resulting from a car accident that all occurred after September. Also what abt the tail coverage I purchased after my employment ended?

    Any thoughts from tax experts would be really helpful!

  • #2
    You can deduct job hunting expenses as a Miscellaneous Itemized Deduction on Schedule A of Form 1040. Since you weren't self-employed, filing a Sch C just to deduct expenses would be improper if you had no related income and were not at least trying to make a go at your own business. You can also deduct a casualty loss on Sch A. Both deductions are limited and, of course, you must have enough other expenses to warrant itemizing.

    Of course, you asked if you can claim to be a SP. You can try anything you want if you're willing to sign your tax return. I'm just saying that, given the facts provided, you shouldn't.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      A sole proprietor can deduct losses from a Schedule C against other income (businesses have bad years). However, to file a Schedule C, you should to be actively engaged in a trade of business. That is not to say that a startup business needs to have revenue immediately. However, your fact pattern more sounds like a search for the meaning of life than a sound business plan and execution.

      I am not a tax professional, but this sure sounds sketchy to me and ripe for the IRS to disallow and assess penalties. Now what are the odds you would get audited over this? I have no idea.

      Maybe someone else will chime in. I see jfoxcpacfp has.