Business Expenses

[ainsley101]

I have a client who was on unemployment for a portion of the tax year and then decided to pull money out of their 401k and maxed out their credit cards to launch their business.  They didn't make alot of money in their business but had alot of expenses.  When I started filling out their schedule C to include all of their business deductions, the amount they owed in terms of federal taxes didn't go lower than a certain $ amount no matter what the deductions totaled.  Is there a cap on how much you can deduct if you collect unemployment?  Or is there something else that I'm missing? Thanks.

[Camp1040]

You may have income tax liability to zero but assuming the TP is under 59 1/2 you are seeing the penalty for the 401-k distribution on the other tax line.  I Think

[ainsley101]

Thank you.  That maybe it because they took out 10k from their 401k, but no taxes were taken out of that distribution and they are under 59 1/2.

[Just-Lisa-Now-]

Please look at the return and follow the money to see how the mechanics work, you cant just look at the balance due to understand whats happening or why..