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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29793
Experience:  Taxes, Immigration, Labor Relations
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Small business that didnt make it do I have to file tax

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I purchased a distributorship for a new product in 02/2007. This was a large piece of equipment to be sold to spas and salons for skincare. At no time did I have any inventory of this equipment.
I used all of my savings to do this and incorporated the business as an LLC. The cost for the *protected* territory was $10,000 plus additional start up costs such as office equipment, postage, website, advertising, etc of another $7,000 (I have receipts) In the meantime the seller never followed through with getting the product ready to sell or other national ad campaigns. I''ve since learned it violated business opportunity laws and I''m in the process of suing him for my money back (another $6,000) so far. Do I file a tax return and if so, is it possible to write off my losses on my personal Fed return? ? I never made a penny.
Submitted: 9 years ago.
Category: Tax
Expert:  Lev replied 9 years ago.

The main question would be - if the business already started and your expenses are operational expenses or the business has not started yet - and your expenses are start-up expenses?

It is not clear from your explanation, but because you never made a penny - I tend to think that your business is not started.

Customer: replied 9 years ago.
Reply to LEV's Post: The business never really started, although I spent 4 months trying to market the product. Because the seller never came through with the support/advertising/brochures etc. promised; the business never got off the ground. They were start-up expenses.

Is this what you're asking me?
Customer: replied 9 years ago.
I responded to his question for clarity and have not heard back. Is there something else expected of me? I am confused because I do not yet have an answer to my question regarding whether I need to file at all and if so, can I claim a loss?

Thanks. Hope to hear soon.
Expert:  Lev replied 9 years ago.

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 9 years ago.
Reply to LEV's Post: I'm sorry that I still don't quite understand. Whether I amoritize start up expenses over 15 years or the other option; my question was whether I need to file a tax return for the business and report these losses or deduct them on my individual return?
Expert:  Lev replied 9 years ago.

You may deduct start-up cost only after the business is started.

LLC is not taxable entity and as one-member LLC - it is taxed as a self-proprietorship.

If your business is started - you may deduct 1/15 of start up cost every year. You would need to file a schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf to report gain/loss from the business.

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