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A friend of mine started a small business last year. He has not made any revenue from it. He basically spent the year setting it up so he has put out money to get it started. Can he claim that on his tax return? If so, this would be considered a loss that he would be claiming and how many years can you claim a loss.
The last that I was told when you claim a loss on a business, you can only claim a loss for 2 years, but that was some time ago that I was told.
It depends; if it is a real business with a profit motive their losses are above the line deductions, if it's a "hobby" business the losses are limited to income produced by the business.
This is a comic book business that he started last year and he spent last year paying out money to register the name, hire a writer and an artist and completing his first issue. He has not sold his first issue as of yet. He spent last year getting up and going. So would he be able to claim that as a business or would it be considered a claim for a hobby?
And what do you mean by "above the line deductions"?
Last edited by starlissa; 01-04-2008 at 09:32 AM..
Why is he having a friend ask this for him on a discussion forum? If he's serious about it being a business, he has to treat it that way. He needs to get his taxes professionally done if he doesn't know the answers to these questions. Why didn't he find all this out before he started the business?
Careful planning is the key to successful business.
I don't think there is a specific "test" on the hobby question, but if it just keeps loosing money it would show its not a serious business and is more of a hobby. I think the rule of thumb they use is if it looses money 3 out of 5 years then its a hobby.
I'm sorry, but RoaminRed, I'm asking a serious question, one I'm looking to get serious answers on to ensure that this person is following the right process in doing his taxes. If you are unable to provide me with some helpful feedback, one that doesn't require a snide comment behind it, then I would really appreciate it if you would keep your comments to yourself and let someone else that actually want to be helpful, to assist me .
The last I checked, this is forum where you can ask any question you want to ask and I think that I'm entitled to that. If that's a problem for you, then I suggest you seek entertainment else where.
Now, I need to know if this gentlemen is entitled to claim his comic book business on his taxes. He has not generated any income, but he has basically invested in it, taking a loss for right now b/c it just got started. I'm looking to verify if this could be claimed or not.
I'm sorry, but RoaminRed, I'm asking a serious question, one I'm looking to get serious answers on to ensure that this person is following the right process in doing his taxes. If you are unable to provide me with some helpful feedback, one that doesn't require a snide comment behind it, then I would really appreciate it if you would keep your comments to yourself and let someone else that actually want to be helpful, to assist me .
The last I checked, this is forum where you can ask any question you want to ask and I think that I'm entitled to that. If that's a problem for you, then I suggest you seek entertainment else where.
Now, I need to know if this gentlemen is entitled to claim his comic book business on his taxes. He has not generated any income, but he has basically invested in it, taking a loss for right now b/c it just got started. I'm looking to verify if this could be claimed or not.
Thanks for your help :-)
Of course you're entitled to ask any question you want, but I gave you a serious, pertinent answer and asked you serious pertinent questions about your post.
The place to find out the true answers to a question such as you posed are with a professional. I know that I wouldn't trust my tax questions to something someone posted here, because there's no way you can verify that the person who gives you that info is a reliable tax professional.
Your friend is just asking for trouble with the IRS by not going to someone legitimately knowledgeable who can answer his questions. I work in the tax preparation business, so take that as you will.
This is a comic book business that he started last year and he spent last year paying out money to register the name, hire a writer and an artist and completing his first issue. He has not sold his first issue as of yet. He spent last year getting up and going. So would he be able to claim that as a business or would it be considered a claim for a hobby?
And what do you mean by "above the line deductions"?
Roaminred is right, it's in your best interest to sit down with a CPA. This is complicated stuff and the last thing you want to do is expose yourself to
unnecessary liability in order to save a few bucks.
There are a few general tests to determine if something is a business or a hobby. The main one is that you are operating it with the intent to make a profit and not just for entertainment. Ultimately, the burden of proof is on the taxpayer.
"Above the line deduction" is something that your accountant will be able to explain. Basically, it's a deduction FOR gross income, so you don't have to itemize to take it. Also, it's not subject to phaseouts and limitations.
I did a quick search on Internal Revenue Service and plugged in business expenses. The very first Q&A is hobby vs business and then it refers to Pub. 334, Business Expenses.
There is a chapter on Business start up costs that is applicable and whether to amortize or how to treat them on the return. You should probably read this publication.
Generally, the pubs are in order of what is new and then what you might need from beginning to end. It was easy to find this on their website.
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