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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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If I get into starting an internet business and form an LLC,

Resolved Question:

If I get into starting an internet business and form an LLC, and pay LLC formation fees, take education/training to get the internet business set up and pay for a business plan in year 1, and year 2 have some additional expenses. Then I determine this is really more of a scam and never end up earning any revenue and close the business in year 2, how do these expenses get reported on tax return? It is a sole member LLC, reported on Schedule C.
Are these business start up?
If the business failed, are they capital losses per IRS Pub. 535?
When do they get deducted?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

If this business was a true business, then yes - you can deduct the startup costs as a capital loss on Schedule D of your 1040.

Megan C :

However, the IRS has a habit of claiming that failed businesses were really hobbies, and if they rule that your business was a hobby the hobby loss rules would prevent you from deducting any losses, because you have no revenue.

Megan C :

You can read about what the IRS says about businesses vs hobbies by clicking HERE.

Megan C :

A good article on this topic (failed businesses) can be found, HERE

Customer:

Yes, the intent was for it to be a true business to make money. So I do believe it would not be a hobby.

Megan C :

Okay, if that is the case then you would be able to take a capital loss

Customer:

Would this all get deducted on Schedule D in the year it was determined the business failed, i.e. year 2?

Megan C :

Yes, it would be the year the business failed

Megan C :

Do you have further questions about this?

Customer:

One more question - if some expenses were paid in year 1 and some year 2, is it all reported as one loss, with the initial date money was spent, or is it separated out into when expenses were paid - i.e. some may be long term and some may be short term.

Megan C :

It is all treated together. It's a capital loss, though so it doesn't matter if it's short or long term

Megan C :

the loss is still treated the same.

Megan C :

Is there anything else you need assistance with?

Megan C :

If you have the information you need, please rate as "excellent" so that I may receive credit for asssisting you todya

Customer:

Ok thank you.

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 6 other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thanks, Diane for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today..

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