Schedule C, Line G, how do I change to "no"? (the "materially participate" question)

Hello cellafella:

No, there is no way to change a Yes answer on Line G of Schedule C.  You are correct in that our software will default to a Yes answer with regard to material participation for a Schedule C business because assuming you are indeed engaged in a business activity, as both owner and employee of the business among other things, your activities are by definition deemed material.  

If your activities are not material, then they are likely passive and perhaps your income/expenses need to be reported on another form, and not a Schedule C.  For example, while Schedule E is used to report passive income received in connection with a rental activity, it is also used to report income received from royalties, partnerships, S Corporations, estates, and trusts. 

Additionally, if the activity in question was not a business at all, then any income received could perhaps be reported as Other Income on line 8 of Schedule 1 to Form 1040. 

If you can follow-up with additional information about your Schedule C business, the nature of the work you do, the hours devoted to the business, that will help us better understand your situation.  

While you are reviewing your information, take a look at the examples of “material participation” as defined in the online Instructions for Schedule C and see if you meet any of these criteria.  When you access this IRS website, scroll down the screen and select Line G.

https://www.irs.gov/instructions/i1040sc#en_US_2024_publink24329wd0e676

Sincerely,

George, EA

Tax Pro.