The at-risk rules may affect how losses reported on IRS Schedule C are treated for tax purposes. These rules limit the amount of loss an individual can claim to the amount that is considered economically at risk in the business activity.
What the At-Risk Rules Are
The at-risk rules are designed to prevent taxpayers from deducting losses in excess of their actual financial exposure in a business. They focus on the amount of money and property the individual has invested or is otherwise personally responsible for in connection with the activity.
How At-Risk Amounts Relate to Schedule C
Schedule C calculates profit or loss from business activity, but the at-risk rules may limit how much of a reported loss can be applied within the tax return. These rules do not change how Schedule C is completed, but they can affect how losses are treated after the form is filed.
Interaction With Other Limitation Frameworks
The at-risk rules operate alongside passive activity limits and excess business loss limitations. Understanding how these frameworks interact helps explain why a reported Schedule C loss may be limited or deferred. Related overviews are provided in Passive Activity Limits and Excess Business Loss Framework.
Connection to Profit and Loss Reporting
How profit or loss is determined on Schedule C is explained in Understanding Profit and Loss. The at-risk rules apply after this calculation and do not alter the structure of the form itself.
Related Guidance and Reference
A general overview of Schedule C is available in IRS Schedule C Overview. The official rules and definitions issued by the Internal Revenue Service are available in the reference entry at IRS Form 1040 Schedule C.