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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hi, I invested several thousand dollars of my own money in

Resolved Question:

Hi, I invested several thousand dollars of my own money in setting up a business in 2009. The money was spent on equipment, inventory, buildout, and admin expenses. Can I deduct these expenses from my personal tax return? If yes, how?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Did you actively start this business in 2009?



Customer: replied 7 years ago.
Yes the business was started in 2009.
Expert:  Merlo replied 7 years ago.

Hello again nigbal,


As long as your business was started in 2009, then you may deduct these expenses. However, keep in mind that not all of your purchases can simply be written off in one year. Assets that you purchase such as computers or other equipment must be depreciated over a period of years, and cannot be expensed all in one year.


Also, you do not write off the cost of your inventory until it is actually sold. The inventory is just another asset purchase and you do not claim it as an expense until you sold part of that inventory.


Your income and expenses from the business should be reported on Schedule C of your tax return.



Thank you nigbal



Customer: replied 7 years ago.

Thank you. XXXXX also list constrution costs, and rental expenses on schedule C? I am not familiar with schedule C, do these expenses fit under any specific category? Please confirm that I can deduct this on my 2009 personal tax return

Expert:  Merlo replied 7 years ago.

Hello niqbal,


Yes, you may deduct the cost of rent you paid for your business office or any other expenses you had. The only thing you cannot deduct all at one time is the cost of your inventory and the cost of any equipment or other assets that you purchase. Assets or equipment which have a useful life of one year or more must be depreciated over a set number of years depending on the class of the item. For example, computer equipment is depreciated over a period of 5 years. So if you bought a computer at a cost of $1,000 you would claim a depreciation expenses of $200 for each of the next 5 years.


Schedule C has a line by line description of the type expenses you can deduct. There will be a separate line for rent paid and other expenses you had.



Thank you niqbal



Customer: replied 7 years ago.

Sorry one more clarification. The business is set-up as an S-Corporation. Can I still use schedule C?

Expert:  Merlo replied 7 years ago.

Hello niqbal,


No, you most definitely do not use Schedule C if you are set up as an S Corp. That is entirely different.


The S Corp itself will file a separate tax return on Form 1120S. On that return you will report the income and expenses of the company. The S Corp will also issue a W-2 form to you for any salary that you paid yourself and will also issue you a K-1 form to report any dividends you received. You will then simply report the income form the W-2 and the K-1 form on your own personal tax return.


But the same rules apply as far as what you can expense and how you handle the assets and inventory.



Thank you niqbal



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