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03 - Accounting & Taxes Accounting Help & Tax Strategies

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  #1  
Old 02-28-2007, 08:51 PM
logzy logzy is offline
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Default How many years can I show a loss?

I have a small online retail business that has not produced enough revenue to offset the cost of running the business. I have reported a loss for 3 years now and was wondering if there is a limit the IRS will accept? Will I be forced to close?
Thank you for your input
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Old 02-28-2007, 09:00 PM
Ringtoneguy Ringtoneguy is offline
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I've heard 4 years...
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Old 02-28-2007, 11:19 PM
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yy8060 yy8060 is offline
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I have never heard of an IRS rule saying you can't show a loss. You have to becare when showing a loss because the IRS may come back and say you are not a business at all, (they will say you doing hobby) and all your expenses won't be write off's. One of the main rules for a business to be a business is what ever you are going your have to have the intent to one day make a profit.

If you are asking this question my question is do you ever plan on making a profit? If not then you should close up because spending money to save on taxes is like me telling you to give me a dollar and I will give you 50 cents back for it.
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Old 02-28-2007, 11:34 PM
Evan
 
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I haven't formally heard of a rule, but you're going to want to be careful if you're consistently having losses. If your losses were gradually decreasing and you were close to making a profit, then the IRS may be more accepting. But as dcordle mentioned, are you ever planning on making a profit?
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Old 03-01-2007, 09:57 AM
logzy logzy is offline
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Thank you all, I do plan on making a profit. My losses have steadily declined and my sales trends indicate that I should go into the black this year. I just don't want to get cut off (declared a hobby) right as I'm turning it around.
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Old 03-02-2007, 10:31 AM
OldJack
 
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The so called "rule" is not really a rule, but is that the IRS "assumes" you are not a hobby if you show a profit in 3 years out of 5 years. However, it is generally expected that a new for profit business will incur losses in the beginning years of operation. The IRS only disallows losses after they have audited your tax return and declared it to be a hobby.
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Old 03-14-2007, 11:07 AM
pilotgya pilotgya is offline
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Quote:
Originally Posted by OldJack
The so called "rule" is not really a rule, but is that the IRS "assumes" you are not a hobby if you show a profit in 3 years out of 5 years. However, it is generally expected that a new for profit business will incur losses in the beginning years of operation. The IRS only disallows losses after they have audited your tax return and declared it to be a hobby.
That's your answer.

Just make sure if the IRS does audit you for the business vs hobby that you have sufficient records to show your business. Sufficient business records (even if it's a loss) will show them that you intend to make a profit in the near future.
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