removing my business from the tax rolls?

sisterpine · #1 01/16/11, 12:24 PM

Well I did not word that very well the first time LOL. My little business will be showing a loss unless I MAKE it show a profit this year. I am afraid that I will be audited and the IRS will disallow my deductions. I am wondering if, since this is the 4th year of loss, should I just leave the business off the tax forms or will that make the situation worse. Turbo tax asks if I started or ended a business during the year and I dont know what to put. Can i just end my business at the end of december as far as taxes go? sis

Melissa · #2 01/16/11, 09:25 PM

If you receive income for the business you must show it. If you are worried about showing a loss, there is no law that says you must take every deduction- just that you must show all income... So take only the amount of deductions you need to take to show a profit of less than $400, then you won't have to pay any self-employment tax.

katydidagain · #3 01/16/11, 09:48 PM

Call the IRS and ask them what to do; be sure to note the name or names of those who advise you.

sisterpine · #4 01/17/11, 03:52 AM

OK that all makes sense. I thought it was an either or thing. Will call to confirm tomorrow. Thanks for the advice. sis

txquilter · #5 01/17/11, 10:45 AM

Sisterpine - I've been an accountant for over 28 years now and I can assure you that small losses are nothing to the IRS. I have had a home business (schedule C) on and off my tax return for most of that 28 years. Different types of business, doing different things. I think in all that time I only showed a profit once.

My advice to you would be to run it through turbotax, let it do the audit and see where you are on the "risk" factor that turbotax indicates. Chances are you are not even a blip on the radar.

Of all the returns I have prepared over the years and all the experience I've had the one thing I see is that as long as your company is making strides toward improvement (meaning smaller losses each year) then it shows that your company is improving and not just a hobby you put in place to take advantage of the deductions.

And yes, the others on this post are correct - you don't HAVE to take every deduction available if you are not comfortable with it.

Good Luck with your return! I've got 3 to do myself here in the next month. UGH...

tealover · #6 01/17/11, 11:03 AM

If you call the IRS, call them back the next day and get another person. Then do it again. Do it at least 3 times, and I bet you will get 3 different answers. IF you get the same answer, then you are safe.

But my experience has shown me that the IRS knows less about taxes than most business owners do.

sisterpine · #7 01/17/11, 10:30 PM

Tee Hee Hee,,,you guys are so smart! And I always get the best info. I shall do was you all suggest, i use turbo tax so will go that rought and will also call three times just to see how interesting the answers are LOL. thanks a zillion , sis

**Shrek** · #8 01/18/11, 03:08 AM

Removing your business from tax rolls entails filing the required closing business paperwork and negating your state license through your state revenue department.

sisterpine · #9 01/18/11, 08:58 AM

Shrek- is the closing business paperwork a state thing or a tax thing, I would have to only give back my DBA stuff and state license and my LLC paper work. I think it would be easier to just show the less than 400 profit for the moment and then when life is quieter do all the other paperwork stuff. sis

Nomad · #10 01/18/11, 10:05 AM

At the risk of getting hit on the head...I thought I read somewhere that if you don't show a profit for so many years out of five, your business is automatically considered to be a hobby and not able to be used as a deduction. I wish I could remember exactly what it said but it was quite a few years ago. They may very well have changed it by now.

Nomad

**Shrek** · #11 01/18/11, 12:27 PM

Quote:

Originally Posted by sisterpine

Shrek- is the closing business paperwork a state thing or a tax thing, I would have to only give back my DBA stuff and state license and my LLC paper work. I think it would be easier to just show the less than 400 profit for the moment and then when life is quieter do all the other paperwork stuff. sis

It depends on your state and how you have your biz established. When I put my sole propriertership transient peddler retail (licensed flea market stand ) to bed I only had to use the business closedown form and final monthlly tax collection coupon in my yearly coupon book issued by my state revenue dept and then claimed applicable profits/losses on the schedule when my taxes were prepared and cease buisiness and let my license expire. It only required the time of filling in one extra page when I submitted my monthly sales tax collection.

If you have a tax accountant ask their advice first. next in line would be your local, county or state tax collector to find what procedures applies for your state.

txquilter · #12 01/19/11, 12:07 AM

Nomad - that's not really the case. To be considered a "viable" business and not a hobby you need to show improvement over the years. Things like increased sales and decreased losses. Case in point - my DH has an S Corp that he has owned and operated for over 16 years. He has only shown an actual profit 1 of those years but his gross sales have almost always increased. The net profit or loss is a direct result of deductions you are permitted to take. For example, if you buy a large piece of equipment and can write it off completely under the Section 179 deduction then you have a huge amount that reduces your taxable liability. As you know the tax code is extremely convoluted and difficult to maneuver through.

What I have always advised people that have asked me is that if they are concerned then talk to a CPA or tax attorney. I have used turbo tax for about 20 years for my personal and business returns and rely on the audit checks they provide. I've been very comfortable with the results and (knock on wood) I've never been nervous about an audit.