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OK -- I purchased things to start my own small business. I have since realized that the business will not be profitable, so I'm going to get out of it before I lose any more money.
I'm trying to sell what I bought to go into business, and am understanding that I am going to have to take a loss on the items. How does that work with my taxes?
Let me explain my income situation. My husband is a 100% disabled vet, so that money is not taxable. Only a portion of his Army retirement is taxable. I don't work currently, but my new job starts near the end of October.
Would the business loss be taken out of our tax liability? Would we be able to "recoup" the loss in our tax return next year?
I am trying to assuage my husband over the loss of money by telling him that it will be made up in our taxes as a business loss, and we'll get it back in the Spring, but I'm not certain, and want to be truthful with him about it.
OK -- I purchased things to start my own small business. I have since realized that the business will not be profitable, so I'm going to get out of it before I lose any more money.
I'm trying to sell what I bought to go into business, and am understanding that I am going to have to take a loss on the items. How does that work with my taxes?
Let me explain my income situation. My husband is a 100% disabled vet, so that money is not taxable. Only a portion of his Army retirement is taxable. I don't work currently, but my new job starts near the end of October.
Would the business loss be taken out of our tax liability? Would we be able to "recoup" the loss in our tax return next year?
I am trying to assuage my husband over the loss of money by telling him that it will be made up in our taxes as a business loss, and we'll get it back in the Spring, but I'm not certain, and want to be truthful with him about it.
Luther will be your best source but here is what I think I know.
When you sell off the remains, you will create a short term capital loss. This can be used against short term capital gains and I think up to $3000 can be deducted from ordinary income.
OK -- I purchased things to start my own small business. I have since realized that the business will not be profitable, so I'm going to get out of it before I lose any more money.
I'm trying to sell what I bought to go into business, and am understanding that I am going to have to take a loss on the items. How does that work with my taxes?
Let me explain my income situation. My husband is a 100% disabled vet, so that money is not taxable. Only a portion of his Army retirement is taxable. I don't work currently, but my new job starts near the end of October.
Would the business loss be taken out of our tax liability? Would we be able to "recoup" the loss in our tax return next year?
I am trying to assuage my husband over the loss of money by telling him that it will be made up in our taxes as a business loss, and we'll get it back in the Spring, but I'm not certain, and want to be truthful with him about it.
Well how will that work, though - see I'm not quite that well versed on income tax law. If the deduction is lower from income, does that mean I'll get it back in my return? That's all I'm worried about. I'm telling him that we'll get the loss back in Spring, but I don't know if we will or not, and I'd rather tell him the truth now, if I'm wrong.
OK -- I purchased things to start my own small business. I have since realized that the business will not be profitable, so I'm going to get out of it before I lose any more money.
I'm trying to sell what I bought to go into business, and am understanding that I am going to have to take a loss on the items. How does that work with my taxes?
Let me explain my income situation. My husband is a 100% disabled vet, so that money is not taxable. Only a portion of his Army retirement is taxable. I don't work currently, but my new job starts near the end of October.
Would the business loss be taken out of our tax liability? Would we be able to "recoup" the loss in our tax return next year?
I am trying to assuage my husband over the loss of money by telling him that it will be made up in our taxes as a business loss, and we'll get it back in the Spring, but I'm not certain, and want to be truthful with him about it.
I don't understand - all the loss and I just have to eat it? I thought that losses could be written off.
I don't know how it will affect me because I don't really have much of an income to claim. Most of our income is non taxable.
I don't understand - all the loss and I just have to eat it? I thought that losses could be written off.
I don't know how it will affect me because I don't really have much of an income to claim. Most of our income is non taxable.
Moderator's Warning: |
OK -- I purchased things to start my own small business. I have since realized that the business will not be profitable, so I'm going to get out of it before I lose any more money.
Thanks, Cap'n. Appreciate it. I was going to say something to them, but realized they weren't worth the effort.
OC - He hasn't answered yet, but the time frame is very brief. Everything was purchased 2 weeks ago and without going into too much detail, the bottom has fallen out of my venture and I can no longer pursue it. There is no revenue at all. None. The expenses are minimal - around $2,000. Still more than I'd like to throw away, though.
Thanks, Cap'n. Appreciate it. I was going to say something to them, but realized they weren't worth the effort.
OC - He hasn't answered yet, but the time frame is very brief. Everything was purchased 2 weeks ago and without going into too much detail, the bottom has fallen out of my venture and I can no longer pursue it. There is no revenue at all. None. The expenses are minimal - around $2,000. Still more than I'd like to throw away, though.
I finished representing a client with a similar problem earlier this year and the first issue that the IRS will look at is whether or not this was ever a legitimate, for profit, business venture.
The straight dope is that the IRS generally looks at this kind of thing as a hobby instead of a business if it never got off the ground floor and as such any loss not allowed. However, [insert all pertinent disclaimers here] if you had some amount of sales you can probably get away with claiming some of the expenses as long as you don't go crazy. For example, if you had gross sales of $1,000 and expenses of $1,500 odds are that nobody will take a look at a $500 loss. If, on the other hand, you had $500 in sales and $25,000 in expenses you'll end up getting slammed.
If you want to drop me a PM with some specifics I can give you a little more insight.
Still more than I'd like to throw away, though.
I've had clients who had Schedule C losses as well. Of my last few, one sold insurance on commission only and the money she received for services did not total expenses - gas, materials, and her own laptop that I wrote off as depreciated listed property (since it was needed for business, but she had before she started). She obviously sucked at her job. Anyway, she showed a loss of about a thousand dollars that deducted off her husband's military income and she never got flagged (that I'm aware of).
I had another who used to buy/salvage computers, fix them up, and resell them. However, since computers depreciate heavily and go obsolete quickly, sometimes if her inventory didn't turnover pretty damn quickly, she'd have to eat it. After some LCM adjustments and liquidations she still showed a loss that I carried over to her 1040 (of which she showed positive liabilities - gee, good thing these women are married). To my knowledge, she never got flagged either.
I'd probably like to know what all Superfly bought for the business. If she had items that are salvageable, obviously that changes things.
If you show substantial gross receipts and end up with a loss that's one thing. If you show no gross receipts and a loss that's another.
The way I figure it is if your loss is somewhere around 10% or less of gross receipts you'll probably be OK as far having a "legitimate business purpose". The cases where you are pretty much guaranteed an audit is when you have substantial income from something other than the Sch C operation and a Sch C loss far in excess of "normal" business expectations.
For example, I have $100k in W-2 earnings and my Sch C Amway "business" shows a $20k loss on $3k gross receipts.
The other thing that will get you tagged is having a Sch C business with $5k profit on $250k gross receipts but itemized deductions of $40k. While an issue like that will probably result in a "no change" if the small profit (or loss) is due to depreciation don't expect that result if it's due to operations.
The good side of that is that it will never be an issue to me. As I'm not a CPA (yet), I'm not ethically bound by anything, but I still have the right (and I have and would exercise it) if someone's obviously trying to pull a fast one. I'm not signing my name on anything that's obviously fraudulent.
Hell, I raked my uncle through the coals and asked him to explain a lot to me. He has a sole proprietorship LLC (easy enough - everything passes through). I did his 2553 for him and set it up as an S-corp with triple-A disbursements (for obvious reasons). However, he got flagged because apparently his base wage was a little on the absurd side. Didn't know that they had changed the rule for that recently. Since then, he's been writing off the strangest things. His is a consultant business, which means that he should have very few write-off expenses. This man will write off dinners with my aunt out on the town as business expenses. I swear...
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