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delta77's avatar

Tax write-offs for a business that does not have any income and only losses?

Asked by delta77 (196points) July 24th, 2010

I am incurring costs for education and building my new start-up business. But if my business does not have any income and only losses for the first year or two, what am I taking the write-offs against? Am I wasting my time in keeping and tabulating the receipts for everything? In sum, do tax write-offs for business-related expenses make a difference if your business does not have net income? Can the tax write-offs from a previous year perhaps reduce taxable income in the next tax year?

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6 Answers

woodcutter's avatar

That happened to me when I started out and it did seem silly to bother but I kept up with it anyway just in case. I never really looked into it as I also had my day job that was humming along. After I finally quit the day job and switched over to being self employed it became real important to file even if there was no real income to report. There’s no doubt that anyone looking at the quarterly filing and conclude there ain’t no way anyone can survive on that amount. It’s obvious that other revenue is helping such as wife’s job, pension, etc. I think if you are incorporated your business can borrow money from yourself and that also becomes a tax write off?

marinelife's avatar

Yes, you can claim a loss against your taxes. Your business cannot incur losses for more than a certain number of years though. Here is the IRS publication about it.

woodcutter's avatar

yes i believe thats right meaning you have a few yrs as freebies for that. But what then? Your business goes from a business to a hobby where the taxes are way less i think. Hopefully things will pick up after some time and off you go. My tax consultant says almost all businesses fail after a few years. It ain’t easy. Something that hourly paid workers never understand or have to worry about ever.

woodcutter's avatar

Sorry what I was trying to say is most new start ups fail not most businesses in general, my god that would be a disaster!

LuckyGuy's avatar

Yes save the information and record the losses. You will be able to subtract them when you finally start making money. (Within some time llimit of course).
Since my company was a corporation I was able to write off losses against other gains I had.
Look up loss carry over.

llewis's avatar

worriedguy and marinelife had good suggestions -

Also check into the rules about Start-Up Costs.
here is a link to a lot of good IRS information about starting a business
this will get you to a search page that includes Publication 535, which has a section on Startup Costs and amortizing them.

It used to be that your business had to produce an income for three out of five years to be considered a business and not a hobby (among other qualifications). Don’t know if that’s still the case. There are also rules (of course) about when education can be a business expense and when it can’t (see Pub 535 again). In general, if you are continuing to improve existing skills or taking classes that are required by law, then you can deduct it. If you are taking classes to learn a new business or trade, then you can’t.

Good luck with everything!

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