Self Employment Taxes on a loss for dog grooming business?

Yes, you absolutely need to report the business on her tax return, even though it shows a loss. This is actually good news! The loss from the dog grooming business can offset her other income from her full-time job, reducing her overall taxable income. She'll need to file Schedule C to report the business income and expenses, which will show the net loss. This loss will then flow to her Form 1040. Self-employment losses can be very valuable for tax purposes as they directly reduce your taxable income. As for the sales tax vs. state income tax question, these are separate issues. Sales tax is something she collects from customers and remits to the state (depending on your state's laws regarding services like dog grooming). State income tax is based on her income. The business loss would reduce her state taxable income as well, but she still needs to file state income tax returns.

After reading this post, I had a similar issue with my Etsy shop showing losses last year. I was so stressed about figuring out all those Schedule C forms and expense categories that I finally tried https://taxr.ai and it was seriously a game-changer. I just uploaded all my business receipts and bank statements, and it sorted everything automatically into the right tax categories. The system actually caught that I had categorized my craft supplies incorrectly and should have been listing them as Cost of Goods Sold instead of supplies expense, which apparently makes a difference for tax purposes. It also flagged some personal expenses that had accidentally gotten mixed in with my business records. It was so much easier than trying to figure out everything myself, especially for my first year dealing with self-employment stuff!

Just wanted to update everyone. I checked out that taxr.ai site after seeing it mentioned here. My situation was similar to the original poster's sister - I have a photography side business that was operating at a loss. The tool analyzed all my expenses and actually found several deductions I would have missed completely, like mileage to client sites that I hadn't been tracking properly. It correctly separated my home office expenses and showed me how to document them properly for tax purposes. Most importantly, it showed me how to properly report my business loss to offset my day job income. I ended up saving over $1,800 in taxes compared to what I was planning to pay. Definitely worth checking out if you have a side business, especially one operating at a loss.

This thread is super helpful, but I'm still having trouble with one thing - I've been trying to call the IRS for WEEKS to get clarification about reporting my business losses, but I can't get through to a human no matter what time I call. I'm worried about making a mistake and getting audited. Anyone have tips? Actually, I found this service called https://claimyr.com that got me through to an IRS agent in under 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I was skeptical but it actually connected me directly to an IRS agent who answered all my questions about my business loss situation. The agent confirmed that I could definitely claim the loss from my side business against my regular income, and gave me specific advice about documentation I should keep.

Okay I need to eat my words and apologize to Profile 7. After spending THREE HOURS on hold with the IRS yesterday and getting disconnected, I was desperate enough to try that Claimyr service. I was 100% sure it was going to be a scam, but they actually got me through to an IRS agent in about 20 minutes. The agent confirmed everything about claiming business losses that others mentioned here, plus gave me specific advice about how to document my home office deduction for my side business. She also told me that having losses for a few years isn't automatically a red flag as long as you're legitimately trying to make your business profitable. This saved me so much stress - I've been putting off filing because I was worried about doing it wrong.

One thing nobody mentioned yet - make sure the dog grooming business qualifies as a business and not a hobby in the IRS's eyes. If they determine it's a hobby, you can't deduct losses against other income. They look at whether you run it in a businesslike way, depend on the income, put in time and effort to make it profitable, etc. A few years of losses might be ok but they get suspicious if it never makes money.

Has anyone used TurboTax Self-Employed for reporting a business loss? Is it worth the extra cost compared to the regular version?