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Jacy
Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I spent 10k trying to get a sole proprietorship going, it failed.

Resolved Question:

I spent 10k trying to get a sole proprietorship going, it failed. I have a full time job as well. Should I claim the 10k on 1040-c, or will the sole proprietorship mess with my personal taxes and cost me more? Also, what does the IRS consider a reasonable attempt at profitability?
Submitted: 3 years ago.
Category: Tax
Expert:  Jacy replied 3 years ago.

Jacy :

Hi'

Jacy :

Yes, you should report your income and business expenses on Schedule C. The loss will reduce your taxable income.

Jacy :

What type of business is it?

Customer :

sole proprietorship

Customer :

was an IT company

Jacy :

Did you have any revenue?

Customer :

i have ~4k that I ended up refunding

Jacy :

To determine whether you can deduct your expenses:

Jacy :

Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.


In order to make this determination, taxpayers should consider the following factors:




  • Does the time and effort put into the activity indicate an intention to make a profit?



  • Does the taxpayer depend on income from the activity?



  • If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?



  • Has the taxpayer changed methods of operation to improve profitability?



  • Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?



  • Has the taxpayer made a profit in similar activities in the past?



  • Does the activity make a profit in some years?



  • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?


Jacy :

If you decide to report and take the deductions for your expenses, make sure they don't seem personal in nature.

Customer :

ok, i guess my reservation is that while I can prove the money was spent to start a reasonable business, the costs were incurred during startup and the company was only 'open' for two months before i deemed it too costly to continue. i would have required more capital to get it into a profitable state.

Jacy :

You are entitled to report the loss, but it will increase your chances of audit.

Jacy :

I need to change computers and close this chat. If you need additional information, you can Reply again later.

Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience: Nine years individual income tax preparation and consulting
Jacy and other Tax Specialists are ready to help you

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