Can I file a Schedule C with my 1040 if I don't have a business yet?

Thanks for this info! How many years can you go without making a profit before the IRS considers it a hobby? I heard something about a 3-year rule?

The IRS generally looks at what's called the "3-of-5 rule" - meaning you should show a profit in at least 3 out of 5 consecutive years for the activity to be presumed a business rather than a hobby. But this isn't a hard rule - even with continued losses, you can still qualify as a business if you can show you're operating in a businesslike manner and genuinely trying to make a profit. For example, having business plans, separate business accounts, professional advice, changing strategies to improve profitability, and spending significant time on the activity all help demonstrate profit motive even without actual profits yet.

Does it actually work with handwritten receipts? I have a stack of them and my tax software keeps rejecting the photos.

I'm hesitant about using AI for taxes. How accurate is it really with complex tax situations? Do real tax professionals review the results?

Yes, it actually does work with handwritten receipts! It uses OCR that's specifically trained on receipt formats. I had a bunch from office supply stores that were partially faded and it still extracted the info correctly. Just make sure your photos are reasonably clear. For complex situations, I was impressed with the accuracy. What makes it different is it's specifically trained on tax documents and IRS publications, not just general AI. The results come with citations to specific IRS rules and publications, and there's an option to have a tax pro review everything if you want that extra peace of mind.

How does this even work? The IRS phone system is literally designed to be impossible to navigate.

Sounds like a scam tbh. No way they can magically get through when millions of people can't. They probably just charge you and then you still wait forever.

It works by using their system that continuously redials and navigates the IRS phone tree until it gets through, then it reserves a spot for you in the callback queue. It's basically doing what you'd do manually but with automation that's constantly trying different paths through the system. I was skeptical too at first. But they don't charge unless you actually get the callback, and mine came in about 20 minutes. The IRS agent confirmed they're just using a legitimate feature of the IRS phone system that lets representatives place callers in a callback queue - they're just much more efficient at getting to that point than we are manually calling.

Thanks for this advice! Do I need to file any other forms besides the Schedule C? And what counts as "material participation" if I'm still in the planning/setup phase?

You'll need Schedule C and potentially Schedule SE if your net profit (once you have income) exceeds $400, since you'd owe self-employment tax. You might also need Form 4562 for depreciation and amortization of startup costs over $5,000. For material participation during planning/setup, track time spent on: researching your market, developing business plans, meeting with potential suppliers/partners, setting up your business infrastructure, building a website, creating marketing materials, obtaining necessary permits/licenses, and attending relevant training. The IRS has several tests for material participation, but the most common is the 500-hour test (spending more than 500 hours on business activities during the year). Keep a simple log with dates, hours, and brief descriptions of what you did related to the business.

This isn't entirely accurate. If they're truly "startup" expenses before the business is actually in existence, IRS Publication 535 says they're not deductible until the month when the active business begins. You can elect to deduct up to $5,000 immediately once the business starts, with the rest amortized over 15 years.