My LLC had zero income but expenses in 2023 - Do I still need to file taxes?

Thanks for explaining that. So if I had a W-2 job that paid me $65k last year, filing the Schedule C with my LLC's $3,200 loss would actually reduce my taxable income to $61,800? Also, is there a limit to how many years I can claim losses before the IRS considers my business a "hobby"?

Yes, that's exactly right! Reporting the $3,200 loss on Schedule C would reduce your taxable income from your W-2 job. So instead of paying taxes on $65k, you'd pay taxes on $61,800, which could save you hundreds in taxes depending on your tax bracket. Regarding the hobby loss rules, the IRS generally expects you to show a profit in at least 3 out of 5 consecutive years to be considered a legitimate business. If you continue showing losses year after year, the IRS might classify your activity as a hobby rather than a business, which would disallow those losses. However, for a new business, it's completely normal to have losses in the early years, so I wouldn't worry too much about that right now.

Does this tool actually help with filing or just with organizing receipts? I have a similar situation with my consulting LLC but I'm using TurboTax and wondering if I should switch.

I'm skeptical about these tax tools. How does it know what's deductible better than something like H&R Block? And can it actually help if you get audited or is it just giving you general advice?

It does both - helps with organizing receipts AND integrates with most major tax filing software including TurboTax. It creates a special report that shows exactly how to enter everything into whatever tax software you're using. I actually used it alongside TurboTax and it made the process super straightforward. It's different from general tax software because it specifically focuses on documentation and compliance, not just calculations. It creates an "audit defense file" with all your supporting documents organized by tax form line number. It also gives specific advice for your situation based on actual tax court cases involving businesses similar to yours. For me, it highlighted that I needed to show active marketing efforts for my photography business to prove profit motive despite the losses.

Wait, how does this actually work? I thought it was impossible to get through to the IRS these days. Is this just paying for someone to sit on hold for you or something?

Sounds like a scam tbh. Why would you pay for something you can do yourself for free? The IRS literally has a toll-free number. Just keep calling.

It uses a callback system that basically navigates the IRS phone tree and holds your place in line. When they get to an actual human IRS agent, the service calls you to connect with them. It's not just someone sitting on hold - it's a system that keeps trying different numbers and tactics until it gets through. The IRS does have a toll-free number but if you've tried calling lately, you'll know they literally hang up on you when call volume is high, which is almost always during tax season. I tried calling for 3 weeks straight at different times of day before using Claimyr. The time I spent trying to get through myself was worth way more than what the service cost.

Thanks for bringing this up - it's definitely something I'm concerned about. How exactly did you try to prove you had a profit motive during your audit? I've been keeping records of all my marketing efforts, business plans, etc., but wondering if there's anything specific I should be documenting.

During the audit, they wanted to see evidence of active marketing efforts, business planning documents, changes to my approach after losses, and detailed records separating business from personal expenses. They also looked at whether I had expertise in the field or consulted with experts. My big mistake was I didn't adjust my business model after continued losses - I just kept doing the same thing expecting different results. You should document how you're changing your approach to become profitable, show records of advertising/marketing, maintain a separate business bank account, and maybe even take some business courses to show you're serious. Basically, you need to prove you're running this like a business, not a hobby.

What about if the LLC made literally $0? Not even a single dollar of income. Can you still deduct expenses or does the IRS have some rule about businesses needing to have at least some income?

Yes, you can absolutely deduct expenses even with $0 income! The IRS doesn't require any minimum income threshold to claim legitimate business expenses. As long as you can prove you had a genuine profit motive and the expenses were ordinary and necessary for your business, you can report them on Schedule C. The key is documentation - keep all receipts, maintain a separate business bank account, and document your business activities showing you're actively trying to generate income. Even with zero revenue, if you're marketing your services, networking, or taking steps to build your business, that demonstrates profit motive. The business loss will offset your other income sources, which is actually a tax advantage in your startup phase.