Self employed/ freelancer with no income reported in prior years

[bornfree2]

Whats the best way for a freelancer to explain income when they got no client work in 2-3 years. That period of time was spent retraining, retooling, and trying new ideas to market to new niches. But attempts were unsuccessful. Living expenses was paid with savings and growing debt.

In 2020, companies adopted work from home policies. This made finding clients even harder since the entire world was applying for these remote jobs. Additionally, typical mom-pop clients stopped looking for service providers. As we all know, the world stopped all at once.

Thus, no freelance income was gained. And freelancer remained unemployed.

Since no income was gained, no tax returns needed to be filed.

Prior to that period, tax returns show successful freelancing income.

Is it better to file taxes for 2020 as a freelancer running a business or as an unemployed individual? File the prior years to have something on the record?

The forms ask in various places if person is unemployed or running a business.

This may complicate case as a no-asset unemployed person to a no-asset sole proprietor.

What is best way for an unsuccessful freelancer in the past 3 years to handle this.

[justbroke]

If you're asking about how this affects bankruptcy, then I would say no more than a debtor who lost their job within 6 months of filing. There is an affidavit that a debtor can file with the court that verifies, under penalty of perjury, that the debtor was not required to file a tax return and give the reason.

This doesn't complicate anything but it will bring questions during the 341 Meeting. The Trustee will want to know how you are surviving.

[bornfree2]

If you're asking about how this affects bankruptcy, then I would say no more than a debtor who lost their job within 6 months of filing. There is an affidavit that a debtor can file with the court that verifies, under penalty of perjury, that the debtor was not required to file a tax return and give the reason.

This doesn't complicate anything but it will bring questions during the 341 Meeting. The Trustee will want to know how you are surviving.

well from what ive understood, if you are self employed then that business is 'acquired' by the trustee on filing. so they will want to know inventory, client lists, profit and losses, etc. which for a small time freelancer is probably all exempt-able as 'tools of trade'.

but it ads more potential documentation requests from freelance .. in that sense its more complex than 'unemployed individual'

[justbroke]

I can't give you legal advice, but if you're a sole proprietor, there's no real business to acquire. Now the Trustee does step into your shoes so if the business had assets and you're a solprop then they could be included in the bankruptcy estate.

I think you're thinking way too much into this.

Trustee don't really want to operate businesses. They are looking to liquidate assets on behalf of the estate, so that unsecured creditors can be paid. If you're a soleprop, then your personal "Tools of the Trade" exemption would cover any tools you may have. If you have copyrighted materials with value, well they have value and if you can't exempt that intellectual property, then it's subject to liquidation.

But we are getting way way way ahead of ourselves. Chapter 7 (panel) Trustees want easy things. They are not going to rake a sole proprietor over the coals trying to get at otherwise worthless things

If you have been earning income over these past few years then there should be a tax return showing that you earned money over these years. Otherwise if the business has been dead (inactive) for 2+ year, then there is nothing. You can't get a profit and loss from a business that closed two years ago; especially one that never filed a tax return.

Now, if it were a currently operating business and had income, the Trustee may be interested (depending on just how much this thing makes) looking at the books. I've learned over this pandemic that most really small businesses, don't even keep good books or have any accounting system (like Quickbooks, Dynamics GP, etc) in place.

This is worth repeating. The Chapter 7 (panel) Trustee earns about $60-70 per case. They are not spending a lot of time looking at debtors with 0 income over the last few years. Looking at a business that is really inactive and hasn't made any money in 3 years is a waste of $60. The fact is, the Trustee would lose money on the case. The Trustee only wants to spend maybe an hour on a case that is a no-asset case. If they see something juicy, like a patent or unprotected tools of the trade, then it may get interesting.

[bornfree2]

I think you're thinking way too much into this.

Trustee don't really want to operate businesses. They are looking ti liquidate assets on behalf of the estate, so that unsecured creditors can be paid. If you're a soleprop, then your personal "Tools of the Trade" exemption would cover any tools you may have. If you have copyrighted materials with value, well they have value and if you can't exempt that inellectual property, then it's subject to liquidation.

...

If you have been earning income over these past few years then there should be a tax return showing that you earned money over these years. Otherwise if the business has been dead (inactive) for 2+ year, then there is nothing. You can't get a profit and loss from a business that closed two years ago; especially one that never filed a tax return.

Now, if it were a currently operating business and had income, the Trustee may be interested (depending on just how much this thing makes) looking at the books. I've learned over this pandemic that most really small businesses, don't even keep good books or have any accounting system (like Quickbooks, Dynamics GP, etc) in place.

This is worth repeating. The Chapter 7 (panel) Trustee earns about $60-70 per case. They are not spending a lot of time looking at debtors with 0 income over the last few years. Looking at a business that is really inactive and hasn't made any money in 3 years is a waste of $60. The fact is, the Trustee would lose money on the case. The Trustee only wants to spend maybe an hour on a case that is a no-asset case. If they see something juicy, like a patent or unprotected tools of the trade, then it may get interesting.

I know im overthinking things and i have to because this is a BIG move that will affect me for years to come. This is a one shot deal for me out of this mess. Any tiny little missing document that will be asked for or questioned and i cant meet some deadline, im going to try to get ahead of before i file. because thats when the clock ticks.

Id rather be the $60 / 3 minute 341 meeting call guy that spent a whole month preparing full time, than the one hit with requests and scrambling after filing. Ill gladly laugh off my obbession to get this right once the discharge arrives.

Thanks for your assurances as always.