Should I file a Schedule C?

[Luckyword]

I owe $350 on my federal income taxes, however, I could file a Schedule C and claim a loss. Good idea, or not? Ya see, my side gig is Acting. And I spend some money on acting, and make a little, but pocket change. My concern is, if I file a Schedule C, and take a loss, will that automatically trigger an audit? I do have receipts, and could have a loss of about $500, so instead of me owing $350, they'd owe me $150. Again, would that trigger an audit? Should I just pay the $350? I've never been audited. Please help.

 

[FlyingRon]

First, in order to deduct business expenses you have to have a legitimate business motive. Hobby losses aren't deductible. Even with a legitimate business the expense must be an allowable necessity for conducting that business (not saying it isn't but you didn't explain what it is you intend to deduct). Have you ever shown income from your acting on your taxes?

Second, a $500 loss isn't going to result in a $500 reduction in tax liability. It only reduces your gross income, which will result only in about a $140 reduction in the tax liability.

 

[HappyWanderer]

While I agree with Flying Ron, even if a hobby, you can deduct the costs up to the amount of the income. Would a schedule C increase the chance of audit? Yes. Any form increases the "chance" for different reasons. But, in your case, not to any appreciable extent.

I'd file the schedule C. If you legitimately doing the acting as a way to make money, take the loss of $150. If it's more of a hobby, put in all the expenses on the form, but only take them up to the amount of the income you earned.

 

[FlyingRon]

While I agree with Flying Ron, even if a hobby, you can deduct the costs up to the amount of the income. Would a schedule C increase the chance of audit? Yes. Any form increases the "chance" for different reasons. But, in your case, not to any appreciable extent.

Yes, I know that, but I have the feeling that he's not offsetting business/hobby income with the deduction (since he wasn't going to file a schedule C before, which is where such income would have been reported.

 

[Luckyword]

Clarification

I figured my taxes, and without the Schedule C, I'll owe $350 on my Federal Taxes, and California will owe me about $175 on my State taxes.

I filed a Schedule C with my 2008 return, in order to offset Acting income. I'd only made about $1,000 acting in 2008. 2009 was even slower, with only one gig reporting to the IRS, think for income of about $150. But I do have expenses. Gas, auto mainentance, insurance, that kind of thing. Or I could show receipts for $160 for postcards I had made, and about $80 in postage. That kinda thing.

What I was thinking of doing was filing a Schedule C and actually showing a net loss on Acting for about $500. That would reduce my taxable income so I wouldn't have to pay as much.

But what I'm concerned about is, if I take that approach, even though I have the receipts, would they possibly audit me. 'Cause if they would, I'm probably better off just paying the $350 on my Federal Taxes, in which case they would definitely not audit. I just want to avoid the headache. So is it worth the risk, or should I just pay the $350?

 

[HappyWanderer]

I think you should properly report your income and expenses on schedule C. The only determination to make is if acting is a hobby or a business.

 

[FlyingRon]

Happy is right, you need to report the income and the deduction on the schedule C. At the worse, it's just going to wash out to zero.

If you actually had net acting income (after expenses) in 2008 (and paid taxes on it) you can probably make an argument that this is a real non-passive business and use the net loss this year to offset the other taxes.

Hope you didn't forget the SE tax in 2008 as well.

Again, see my comment in the first reply. All the schedule C does is lower your AGI. The tax savings is determined by your marginal tax rate multipled by the amount of the loss.

 

[Luckyword]

More Clarification

I ought to have said, I realize it only reduces your AGI.

What is the SE Tax? Hope I didn't overlook something.

This isn't just a hobby, either. Here's my website and demo reel:

Demo Reel

 

[FlyingRon]

Self-employment tax. Schedule SE.
It's the equivalent of the "FICA/MEDICARE" you and your employer pay on regular wages.

 

[Luckyword]

Followup

I looked at Schedule SE but it states that if your earnings are less than $400, you don't need to file Schedule SE.

I've finished Schedule C, and my income from Acting was $325, and my expenses were $1930.72.

I could reduce the expenses but I do have receipts and would like to file. If I report it this way, do you think they'll flag it or question it? Or is that hard to tell?

 

[HappyWanderer]

If you can prove your claim, why do you care if they can "flag or question it"?

Report as appropriate. Sleep well.