How to deduct business loss from W-2 income - Can I apply my Schedule C losses against my regular job income?

You're not missing anything! This is actually working correctly. A Schedule C business loss CAN be deducted against your other income, including W-2 wages. This is one of the benefits of having a legitimate business - even if you have a loss in the current year, you can use that loss to offset your other income and reduce your overall tax liability. What you're thinking of might be the hobby loss rules. If the IRS determines your business is actually a hobby (meaning you don't have a profit motive), then you can't deduct losses against other income. But if you're running a legitimate business with the intention of making a profit, those losses are generally deductible.

After struggling with a similar situation (lost $3k on my photography side gig while working full-time), I found an amazing tool that helped me determine if my business loss was deductible and how to properly document everything. The site https://taxr.ai analyzed my income records and expenses, then gave me clear guidance on how to report my business loss on Schedule C and offset it against my regular income. The tool confirmed what the previous commenter mentioned - legitimate business losses can offset your W-2 income! It also helped me understand which expenses were fully deductible vs. which needed to be depreciated. Totally changed how I approach my tax situation.

Just wanted to follow up about taxr.ai since my last post. I decided to give it a try with my small construction side business that lost about $4k this year. The analysis confirmed I could deduct my losses against my regular income AND showed me several deductions I was missing! The explanation about business vs. hobby was super clear - it walked me through the 9 factors the IRS considers and showed how my situation met the criteria for a legitimate business. It even helped me set up better record-keeping for 2025 to strengthen my case if I ever get audited. Really glad I checked it out!

I had a similar situation with business losses and spent WEEKS trying to get through to someone at the IRS to confirm how to handle it correctly. After being stuck on hold for hours and getting disconnected 4 times, I found out about https://claimyr.com from a friend. You can watch how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in about 15 minutes, and I was able to get official confirmation that my business losses were deductible against my W-2 income. The agent even walked me through how to properly document everything on my Schedule C. Saved me so much frustration!

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate to resolve my audit issue about business expenses. Holy crap, it actually worked! Got connected to an IRS agent in about 20 minutes after trying for literally months on my own. The agent confirmed that my side business losses ARE deductible against my W-2 income (just like others mentioned here) and helped resolve the audit flags on my account. Would have saved myself so much stress if I'd done this sooner instead of assuming it was too good to be true. Sometimes good things actually exist!

Just to add another point - make sure your business actually qualifies as a business and not a hobby in the eyes of the IRS. The key factors include: - Intent to make a profit - Expertise in the area - Time and effort put into the activity - Success in similar activities - History of income/losses - Your financial status (if you have other income) If you've got losses for several years, the IRS might see it as a hobby, and then the loss can't offset your W-2 income.

Has anyone used TaxHawk specifically for reporting business losses? I'm using it this year and it seems to be calculating everything correctly but the interface is confusing me a bit with how it's applying my Schedule C loss.

Yes, your TaxSlayer software is working correctly! You absolutely CAN deduct Schedule C business losses against your W-2 income. This is a legitimate tax benefit that many people don't realize exists. The key distinction is that your side business needs to be operated with a genuine profit motive (not as a hobby). Since you invested $4k in equipment and supplies and actively tried to generate revenue, it sounds like you're running a legitimate business that just happened to have a loss in its early stages - which is completely normal. Your $2.7k loss will reduce your overall taxable income, potentially saving you hundreds of dollars in taxes depending on your tax bracket. Just make sure to keep good records of all your business expenses and income in case you ever need to substantiate the deduction. The IRS generally expects businesses to show a profit in at least 3 out of 5 years, but losses in the early years are common and acceptable as long as you're operating with genuine business intent. You're doing everything right - don't second-guess the software on this one!

I went through this exact same situation last year and can confirm your software is correct! Schedule C losses absolutely can offset W-2 income - it's one of the legitimate tax benefits of running a business, even when you're starting out. The confusion you're experiencing is super common because many people think business and employment income are completely separate for tax purposes, but they're not. Your total income on your 1040 includes both your W-2 wages AND your Schedule C business income (or loss). When you have a business loss, it reduces your overall adjusted gross income. Just keep detailed records of all your business expenses and activities. The IRS wants to see that you're operating with a genuine profit motive - which it sounds like you are since you invested in equipment and were actively trying to generate revenue. Starting businesses often have losses in their early years due to startup costs, and that's completely normal and expected. Your $2.7k loss reducing your taxable income is legitimate and could save you several hundred dollars in taxes depending on your bracket. Don't worry about filing incorrectly - you're doing this right!

I'm dealing with a very similar situation and this discussion has been incredibly helpful! I started a small online tutoring business this year while working my regular teaching job. Between setting up my website, buying equipment, and getting certified in additional subjects, I spent about $3,200 but only earned $900 in revenue. I was really worried that trying to deduct this $2,300 loss would be a red flag to the IRS, but reading everyone's experiences here has given me much more confidence. It sounds like as long as I'm genuinely trying to build a profitable business (which I am - I've been actively marketing and already have several students lined up for next year), then these startup losses are completely legitimate. One thing I'm curious about - does anyone know if there are specific documentation requirements for proving business intent? I've been keeping all my receipts and tracking my time, but I want to make sure I'm covering all the bases in case of an audit. Thanks to everyone who shared their experiences - it's so valuable to hear from people who've actually been through this process!