Expert: Karen Brawner - 3/27/2005

Question
I have a sole proprietorship that has just completed its first year. As is the norm for new business, I have a loss to show for last year. I know that I am supposed to file Schedule C with my income tax 1040, but the thing is my husband and I are living on home equity right now and have no income for last year as we didn't pay ourselves, but put the receipts back into the business directly. My question is this-Since there is no income, do I still file a 1040 and Schedule C? The 1040 will be a boatload of zero's if that's the case and I can't see what the point would be. Can I just file the Schedule C on its own to carryover the loss to next year? Help! Thanks

Answer
Dear Connie,   First of all, "if" you and your husband BOTH own or run this businesss then it is NOT a sole-proprietorship, it is a "partnership" and you should have set it up this way and you should have filed form 1065 "partnership tax return" and showed the loss that way and then the loss from the K-1's would be taken over to the 1040....  Two people can NOT own a sole-proprietorship....

As for just filing the schedule-C, this is not possible...  The schedule-C is part of the 1040 and must be filed together even if the rest of the tax return is "zeros"....  You can NOT carryover anything from one year to the next in a sole-proprietorship unless it is done as start-up costs which have to be amortized over 3-5 years...  Since this business has income, you take deductions in the year the income is earned, only....

thank you,   karen