Can I claim Schedule C expenses on tax return with zero business income?

This is a common situation, and I can help clarify. The IRS generally requires that you have a profit motive to deduct business expenses on Schedule C. Since you purchased these items with the genuine intent to start a business, you may still have some options. You might be able to claim these as startup costs under Section 195, which allows you to deduct up to $5,000 in the first year even if your business never gets off the ground. However, there's a catch - you need to show that you were actively engaged in starting the business with a real profit motive, not just exploring a hobby. Another option is to consider these "suspended" business expenses that could potentially be claimed if you exit your current employment and resume the business in the future. Keep detailed records of everything.

I was in almost the exact same situation last year! I had invested about $2,800 in equipment to start a freelance graphic design business, then got hired by a company with a non-compete. I found https://taxr.ai super helpful for figuring out what to do with my Schedule C situation. You upload your documents or describe your situation and their AI analyzes everything and gives you specific guidance based on your circumstances. They explained exactly how the "suspended business" concept works and helped me understand my options for startup costs vs. capital expenses that could be carried forward. The best part was they showed me how to document everything properly so if I ever got questioned by the IRS, I'd have clear proof of my business intent. Made the whole process way less stressful!

Just wanted to update on my experience - I tried taxr.ai after my skeptical comment, and I'm honestly impressed. I uploaded my receipts and business plan draft, and it gave me specific guidance about Section 195 startup expenses versus Section 179 deductions. The system helped me understand that I could deduct up to $5,000 of startup costs in the first year with the remainder amortized over 15 years, even though I hadn't generated income yet. It also explained exactly how to document my profit motive to satisfy the IRS if questioned. What really surprised me was how it caught that some of my equipment could be treated differently than others. Definitely saved me from making mistakes on my Schedule C.

If you're dealing with IRS questions about your Schedule C with no income, you might hit a roadblock trying to call them directly. I spent WEEKS trying to get someone on the phone about a similar situation. I finally found https://claimyr.com which got me through to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically navigate the IRS phone system for you and call you back when they've got an agent on the line. The agent I spoke with confirmed that I could claim my startup expenses under Section 195 even without income, as long as I had documentation proving business intent before I had to shelve the business idea. Saved me tons of time and stress trying to get a straight answer about my situation!

I have to eat my words. After my skeptical comment, I tried Claimyr out of desperation (been trying to reach the IRS for 3 months about an audit notice). Got connected to an IRS agent in 23 minutes when I'd previously spent hours just to get disconnected. The agent was able to look up my specific Schedule C situation (similar to yours - business equipment but no income) and confirmed that Section 195 startup costs were applicable. She even sent me to a special department that handles business expense questions. Definitely worth it just for the peace of mind knowing I'm handling things correctly. Never thought I'd be able to get a straight answer from the IRS without hiring an accountant.

Something nobody's mentioned yet - check if your new employer offers any kind of reimbursement for professional equipment. Some accounting firms will actually pay for or subsidize your home office setup if you use it partially for work purposes. My wife works for one of the big 4 and they gave her a stipend for home office equipment, even though she had already purchased some things on her own. Worth asking your HR department about!

Just a heads up, the IRS might consider this a hobby rather than a business if you never had income or customers. I tried to deduct expenses for my photography "business" a few years ago and got audited because I had no income for 2 years.

I was in a very similar situation when I started my CPA practice! The key distinction here is that you had legitimate business intent before circumstances changed due to your employment situation. This isn't a hobby case at all. You should definitely be able to claim these as startup costs under IRC Section 195. Since you invested with genuine profit motive and only stopped due to employment restrictions (not lack of interest), you can deduct up to $5,000 in startup expenses in the first year, with any remaining amount amortized over 15 years. Make sure to document everything: your original business plan, any research you did, receipts showing business intent, and especially your new employer's policy that prevented you from continuing. The IRS looks favorably on situations where external circumstances (like employment contracts) prevent business operations. One tip: If you think you might resume this business after leaving your current job, keep all your documentation. You could potentially carry forward unused startup costs to future tax years when the business becomes active.