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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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I started a business in 2007 and also worked for an ...

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I started a business in 2007 and also worked for an employer. I had business expenses, but no income. Can I deduct (itemized) the business expenses from my personal income taxes?
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

The main question would be - if business expenses you had - are operational expenses or start-up expenses? In other words - was your business started? As you do not have any business income it is likely that the business has not been started.

Start-up cost is considered your investment and treated differently. Start-up cost - expenses you had before the business started - in general should be amortized over 15 years.

If you haven't started the business yet - you may not deduct any start-up cost.

You can write off up to $5,000 in startup costs and another $5,000 in organizational expenses in the year that you start your business. However if you have losses you may not deduct start-up cost.

If you can't deduct start-up cost in the first year - you should amortize these expenses over 15 years - thus in the first year you will deduct 1/15 part of the total expenses - and so on in following years.

If you sell the business before deducting all of the start-up costs, you may deduct the remaining start-up costs as a loss as allowed by Sections 165 and 195(b)(2).

Customer: replied 6 years ago.
Reply to LEV's Post: Lev,

To clarify, I did start the business. However, it is a service based business (I am a life coach) and I am in a certification program that allows me to provide services while being certified but requires that a certain number of hours be provided free of charge initially. I did not complete those hours in 2007, so I was not able to charge. However, I still had the costs of setting up and running a home office, marketing and providing services to clients (albeit free of charge).

Taking into consideration my total (personal) income, I would not have had a net loss. But, if we are only looking at the business income, there would be a net loss. I just want to verify that I can deduct these operational expenses from the income I received from an unrelated employer (not the business). And also that I can consider the income from my employer when dedciding if I am able to deduct start up costs.

Thank you!
Expert:  Lev replied 6 years ago.

As you business was already started - you can write off up to $5,000 in startup costs and another $5,000 in organizational expenses in the year that you start your business. However if you have losses you may not deduct start-up cost.

The only you may deduct start-up cost - amortized over 15 years. Operational cost are fully deductible on the schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf . As you will have losses - they would reduce your taxable income and should be reported on the line 12 - http://www.irs.gov/pub/irs-pdf/f1040.pdf

The only concern is that you did not have any business income - that fact may trigger an audit from the IRS - so you should be well prepared to proof that your business was actually started.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22696
Experience: Taxes, Immigration, Labor Relations
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