Separate businesses for different types of work (self employed)?

Question

Hello,

I have two business under my sole proprietorship, healing and coaching and scientific consulting. Historically, my science career has been my main career. I am now doing science as a contractor. I also am growing my healing and coaching business.

The last time I filed taxes with both of these contract work types, I listed my NAICS code as 999999, and listed it as contract research and coaching.

I have a lot of expenses for my healing training, but very little income in 2024. As my science income becomes a main source of income in 2025, can I deduct all expenses from science and healing training under my business or do I need to list them as separate under my sole proprietorship?

I am contemplating forming an LLC in 2025. Will this change how you respond to the above?

Thanks

TriciaD · Answer

Hello Robert,

* You may apply for an EIN, though it is not necessary for most businesses unless they have employees other than the owner. Each business' income and expenses can be reported without an EIN.
* If an expense pertains to a specific business, it should be reported on that business's Schedule C. Expenses applicable to both businesses should be proportionately divided between each business's Schedule C based on the relevant portion. The entire expense amount should not be entered for each business. Typically, a loss in one business will reduce total business income if another business has a profit. Refer to page 39 here: https://www.irs.gov/pub/irs-pdf/p334.pdf
* To elect LLC status for the 2024 tax year, Form 2553 should be completed and filed within the first 2 months and 15 days of 2024 or during 2023 to be effective in 2024. More details can be found here:  https://www.irs.gov/instructions/i2553. Additionally, Arizona requires businesses to register with ADOR before engaging any taxable business activity. Further information is available at: https://azdor.gov/business
* Expenses from previous years cannot be included in this year's tax return. Any unreported expenses must be accounted for by amending the respective year's tax return.

robertaudet · Answer

https://community.freetaxusa.com/discussion/comment/3340#Comment_3340

Thanks Rachel,

I have some follow-up questions.

* If I treat these as separate businesses for tax purposes can I use the same EIN for each? 
* Is there any way I can deduct expenses from one business in the other one?
* If I file an LLC in AZ before year's end, would that enable me to combine the expenses under one umbrella?
* How many years back can I deduct training expenses in the current filing year?

Thanks, Robert

rachels · Answer

Hi robertaudet,

If you are a sole proprietor, you will typically need to file a separate Schedule C for each business that you operate. In other words, if you do two distinct types of self-employment work, you would typically file two separate Schedule C's: one for your scientific consulting, and a second for your healing/coaching business. An exception could be if both were under the same business, like an LLC. However, in most cases, you would treat them separately. Separating them can also help you keep track of your expenses.

So, if you separate these into two Schedule C's on your return, you will be able to keep your income and expenses from your two different businesses separate on your tax return.

Forming an LLC will typically not change how you report your income on your federal return. For more information, please see:

https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc