Understanding The Investment At Risk Box On Schedule C

When filing a Schedule C, you have to identify whether you are using your own money for the business. This is referred to as being at risk. Being at risk means that you are using your own money or borrowed funds, for which you are personally liable, for the business. If you are at risk, a loss may only be deducted up to the amount you personally stand to lose. If a loss exceeds your at-risk investment, the excess is called a suspended loss and may be deducted in a future year.

Investment at risk meaning

When filing a Schedule C form, you must declare whether your business is 'at risk' or not. This means you are stating whether you are using your own money (or borrowed funds for which you are personally liable) for the business. If you are, you can take the full write-off. If not, you'll have to fill out Form 6198: At-Risk Limitations to determine whether your deduction is limited.

If your business is 'at risk', a loss may be deducted up to the amount you personally have at risk. If a loss exceeds your at-risk investment, the excess is called a suspended loss and may be deducted in a future year, indefinitely, until you have a sufficient at-risk basis to absorb the loss.

If you have absolutely no money at risk in your business, you may not deduct any part of a Schedule C loss. The amount of a loss you may deduct must be equal to or less than the amount you personally stand to lose.

If you are a sole proprietor and have invested all in the business, you can mark 'Yes' to the business being at risk.

Amounts invested in the business for which you would not be at risk may include:

• Non-recourse loans used to finance the business
• Cash, property or borrowed amounts used in the business that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability)
• Amounts borrowed for use in the business from a person who has an interest in the business, other than as a creditor

At risk vs not at risk

When filing your taxes, you may be asked to specify whether all your investments are "at risk" or whether some are "not at risk". This is to determine whether you are using your own money (or borrowed funds if you are personally liable) for your business. If you are, then you can go ahead and take the full write-off. If not, you'll have to fill out Form 6198: At-Risk Limitations to determine whether your deduction is limited.

The at-risk rules limit your losses from most activities to your amount at risk in the activity. The application of these rules would be unusual unless you were using certain types of debt financing as opposed to contributions of cash to run the business.

If you are a sole proprietor and invested all in the business, you can mark "Yes" to "All investment is at risk". If you are not a sole proprietor, you may still be able to mark "Yes" if everything that has been invested in the company is from your own funds, and therefore any loss by the company comes out of your own pocket (and is not covered for you by someone else).

Amounts invested in the business for which you would NOT be at risk may include the following:

• Non-recourse loans used to finance the business
• Cash, property or borrowed amounts used in the business that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability)
• Amounts borrowed for use in the business from a person who has an interest in the business, other than as a creditor

In other words, if you have absolutely no money at risk in your business, you may not deduct any part of a Schedule C loss. The amount of a loss you may deduct must be equal to or less than the amount you personally stand to lose.

Investment at risk boxes

When filing a Schedule C, you must indicate whether your business is "at risk". This means you are using your own money, or borrowed funds for which you are personally liable, for the business. A loss may only be deducted up to the amount you personally have at risk. If a loss exceeds your at-risk investment, the excess is called a suspended loss and may be deducted in a future year.

Amounts invested in the business for which you would not be at risk may include:

• Non-recourse loans used to finance the business
• Cash, property or borrowed amounts used in the business that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability)
• Amounts borrowed for use in the business from a person who has an interest in the business, other than as a creditor

If you have absolutely no money at risk in your business, you may not deduct any part of a Schedule C loss. The amount of a loss you may deduct must be equal to or less than the amount you personally stand to lose.

If all amounts are at risk in your business, check box 32a. If you answered “Yes” on line G, your loss will not be reduced by the at-risk rules or the passive activity loss rules. If you answered “No” on line G, you may need to complete Form 8582 to figure your loss.

If some investment is not at risk, check box 32b; the at-risk rules apply to your loss. Be sure to attach Form 6198 to your return. If you answered "Yes" on line G, complete Form 6198 to figure the loss. The passive activity loss rules do not apply. After you figure the amount of your loss that is allowed under the at-risk rules, you may need to complete Form 8582 to figure the passive activity loss.

Schedule C: All investment at risk

Schedule C is used to report income or loss from a business operated as a sole proprietor. When filing a Schedule C, you must indicate whether your business is "at risk". This means you are using your own money, or borrowed funds for which you are personally liable, for the business.

If all amounts are at risk in this business, check box 32a. If you answered “Yes” on line G, your loss will not be reduced by the at-risk rules or the passive activity loss rules.

If some investment is not at risk, check box 32b; the at-risk rules apply to your loss. Be sure to attach Form 6198 to your return.

If you answered "Yes" on line G, complete Form 6198 to figure the loss. The passive activity loss rules do not apply. The amount of a loss you may deduct must be equal to or less than the amount you personally stand to lose. If a loss exceeds your at-risk investment, the excess is called a suspended loss and may be deducted in a future year, indefinitely, until you have sufficient at-risk basis to absorb the loss.

Schedule C: Some investment not at risk

When filing a Schedule C, you must indicate whether your business is "at risk" or not. This means you have to identify whether you are using your own money for the business. If you are, then you can go ahead and take the full write-off. If not, you'll have to fill out Form 6198: At-Risk Limitations to determine whether your deduction is limited.

If you are using your own money, or borrowed funds for which you are personally liable, for the business, you are considered "at risk". A loss may only be deducted up to the amount you personally have at risk. If a loss exceeds your at-risk investment, the excess is called a suspended loss and may be deducted in a future year, indefinitely, until you have a sufficient at-risk basis to absorb the loss.

Amounts invested in the business for which you would not be at risk may include:

• Non-recourse loans used to finance the business
• Cash, property or borrowed amounts used in the business that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability)
• Amounts borrowed for use in the business from a person who has an interest in the business, other than as a creditor

In other words, if you have absolutely no money at risk in your business, you may not deduct any part of a Schedule C loss. The amount of a loss you may deduct must be equal to or less than the amount you personally stand to lose.

Frequently asked questions