How to decide if you have one or more Schedule C businesses?
Self-employed individuals often have more than one activity going at once. You can report closely related activities together on one Schedule C.
If you have unrelated activities, however, you must report them on separate Schedule Cs.
Similar activities would include different lines of business for a salesperson, for example. You can report your sales and expenses on one Schedule C.
Unrelated activities would be separate businesses, such as a hair salon and computer repair service.
Businesses run separately by two spouses are considered unrelated activities. If you are actively participating in one business but not in another, you cannot combine them on one Schedule C.
Can I group all my activities into one business to avoid keeping track of separate income and expenses?
It would be great if you could just keep track of one set of income and expenses, even if you have more than one business activity. Unfortunately, you don’t want to do that.
Keeping separate records, including records for such things as office supplies and vehicle mileage, may be more trouble.
However, it’s worthwhile to make sure you can take all the deductions for which you qualify.
Can I combine different activities into one business to avoid showing a loss from one activity?
The IRS expressly states you cannot combine two activities for the purpose of hiding a loss from one of the activities.
Besides, combining the two activities into one business probably would not affect your total tax liability. As long as your losses are not from passive activities, the loss from one business will reduce your total gain from all businesses.
Won’t my business be considered a hobby if I don’t show a profit in two out of five years?
Your business may be considered a hobby if you don’t make a profit for two out of five years, but that’s not always the case.
Some businesses never make a profit, but are still never considered a hobby. That’s because the profit rule-of-thumb is only one thing the IRS looks at to decide if a business is a hobby.
If your business is operating at a loss, you can still show that it is a business, and not a hobby, by operating it in a business-like manner. This means keeping good records and intending to make a profit.
If you own a business that is unlikely to be a hobby, such as a retail store or a construction company, you should have no problem convincing the IRS that you are operating a serious business.
Is there a minimum amount of money I have to make in an activity before I report it?
You must report all income, including barter income and income received in cash, regardless of the amount.
There is no minimum amount before you have to report it. This misconception may come from the rules for self-employment tax.
You do not have to pay self-employment tax unless you have $400 or more in total self-employment income.
How is self-employment tax calculated when I have more than one business?
Your self-employment income from all sources is combined to determine if you must pay self-employment tax.
You pay self-employment tax if your total self-employment income is $400 or more.
Reporting multiple activities as separate business won’t save you self-employment tax. Your net income from one business or another may be under $400, but it’s your total self-employment income that counts.
On the other hand, if you have a loss from one business and a gain from another business, the loss from one business reduces your gain from the other.
Say you have a clothing store with a net profit of $20,000. You also own an espresso stand, which had a net loss of $10,000. Your net self-employment income is $10,000 ($20,000 – 10,000).
Are you happier working at one business full-time, or having more than one business activity going at once?