Sch C expense?

[jklcpa]

Taxpayer started business in 2006 as single-owner LLC that didn't make it. Sch C has no income or expense in 2007. They had about $1200 of sales from the couple pieces of depreciable assets being reported on 2007's form 4797.

They must have not known that the state would bill them for the corp franchise tax at the end of the year. In Dec 07 they paid the fran tax & fees to cancel the cert of incorp with the state. They really weren't operating the Sch C in 07. Should I put this on as Sch A misc deduction?

[Yardley CPA]

Taxpayer started business in 2006 as single-owner LLC that didn't make it. Sch C has no income or expense in 2007. They had about $1200 of sales from the couple pieces of depreciable assets being reported on 2007's form 4797.

They must have not known that the state would bill them for the corp franchise tax at the end of the year. In Dec 07 they paid the fran tax & fees to cancel the cert of incorp with the state. They really weren't operating the Sch C in 07. Should I put this on as Sch A misc deduction?

When I first read your post, my initial reaction was "it's an expense of the Schedule C and should be reflected that way." After some reflection, it would seem your approach is correct since there was no real activity for the Schedule C. I would agree with Sch A, Misc Deduction.

It's too late on a Sunday for this!!!!

[BulldogTom]

I would go with the C. It is an expense directly related to the operation of a trade or business actively engaged in for profit. Just because it was late does not mean it was not directly related.

My 2 cents.

Tom

Lodi, CA

[jklcpa]

But my problem is that I don't really believe that they were trying in 2007 to be active. There are no amounts at all on the Sch C, not even $1 of income, no other expenses. 2 pieces of equipment were sold very cheap at a yard sale. Car was not used & taken out of service, business use 0%, so the equipment & deprec recapture are on 4797. That's why I was thinking about Sch A.

[jainen]

>>they were trying in 2007 to be active<<

It doesn't matter whether the business was active in 2007, as long as the expenses (and income) relate to the active conduct of a trade or business. Only if they gave up before actually starting in the prior year would these be treated as investment expenses. Otherwise, a 2007 Schedule C loss is appropriate.

[BulldogTom]

Oh My,

Get your bibles out because the world is coming to and end. Jainen agreed with me!

Either I am getting smart (not likely) or he is getting soft (not likely) or the world is ending (only choice left).

LOL.

Tom

Lodi, CA

[Daune/CA]

"$1200 from sale of depreciatable assets on 2007 return"

If they sold assets in 2007, then something was done in 2007 regarding transactions of the business. (My thoughts) Therefore, I would include the expenses on the return, and the resulting negative income for the business and SE.