Filing Schedule C - Question about Line 32 Investment Requirements
Hey everyone, I'm trying to fill out my Schedule C for the first time (running a small Etsy shop selling handmade jewelry). I'm stuck on line 32 where it's asking if all investments are at risk. I honestly have no idea what this means or how to answer it. I've invested about $4,800 of my own money into supplies and equipment over the past year. Does that count as "at risk" investment? What happens if I answer this wrong? Really appreciate any help because the IRS instructions might as well be written in another language!
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Zadie Patel
That "at risk" question on Schedule C line 32 is much simpler than it sounds! It's basically asking if you personally could lose the money you've invested in your business. For most small business owners like you with an Etsy shop, the answer is almost always "Yes" - all your investment is at risk. This question is mainly targeted at people involved in tax shelters or limited partnerships where they might be protected from losses. Since you invested your own $4,800 for supplies and equipment, that money is definitely considered "at risk" because if your business fails, you could lose that investment. Don't overthink this one - just check "Yes" and move on. This question rarely applies to small sole proprietors.
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A Man D Mortal
•Wait I'm confused. I have a similar situation with my small business (web design) and invested about $3k in equipment. If I check "yes" does that mean I'm more likely to be audited? Or is checking "yes" actually the normal answer for most people?
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Zadie Patel
•Checking "Yes" is absolutely the normal answer for most small business owners like you. It doesn't increase your audit risk at all - it's actually the expected answer for typical small businesses. The IRS is looking for people who claim their investments aren't at risk (which can be a red flag for certain tax shelters). If you've invested your own money in your business and could potentially lose that money if the business doesn't succeed, then your investment is "at risk" and you should check "Yes" on line 32. This is the standard situation for almost all sole proprietors.
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Declan Ramirez
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Emma Morales
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Katherine Hunter
•Sounds interesting, but can it handle more complex business situations? I have business income from multiple sources and some expenses that fall into gray areas.
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Declan Ramirez
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Katherine Hunter
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Lucas Parker
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Donna Cline
•Wait how does this actually work? There's no way to skip the IRS phone line, right? I thought everyone had to wait in the same queue.
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Harper Collins
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Lucas Parker
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Harper Collins
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Kelsey Hawkins
Just wanted to add my two cents as someone who's been filing Schedule C for my side business for 7 years. The "at risk" question confused me too at first, but it's really aimed at catching people involved in tax shelters. For regular small business owners (Etsy, freelancing, consulting, etc.), your investment is almost always "at risk" because you could lose the money you put in. The only time you'd answer "No" is if you have some arrangement where someone else guaranteed your investment or where you're not personally liable for business debts beyond your initial investment (like certain limited partnerships). If you put your own money in and could lose it if the business fails, just check "Yes" and move on!
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Dylan Fisher
•What about equipment I bought for my business that I could still sell if the business fails? Is that still considered "at risk"?
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Kelsey Hawkins
•Yes, that equipment is still considered "at risk" even if you could potentially sell it later. The question is really asking if you could potentially lose the money you invested, not if you definitely will lose it. For example, if you bought a $2,000 computer for your business, it starts depreciating immediately and you might only get $800 if you had to sell it used. That potential for loss makes it "at risk." The IRS is trying to distinguish normal business investments from certain tax shelter arrangements where investors are protected from any possibility of loss.
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Edwards Hugo
Just wanted to throw in my experience. Last year I messed up and left line 32 blank on my Schedule C because I didn't understand it. Got a letter from the IRS about 3 months later asking me to clarify. Wasn't a big deal - just had to respond saying "Yes" all investments were at risk (since I just had a simple freelance writing business with my laptop and some software). But it delayed my refund by about 6 weeks, so definitely worth just answering it correctly the first time!
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Gianna Scott
•Did you have to file an amended return or was just responding to the letter enough?
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