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| *SoulEyes Photography>>>Photography Equipment |
More expenses than income? |
Hi...Over the summer I opened a small business so we had remodeling costs and new equipment costs. (photography studio) I just calculated my income vs. my expenses, and my expenses were about 7000 more than what I made. that makes sense to me, because my husband and I about broke ourselves trying to come up with the money to get this studio running. My question....is that going to raise red flags when I file, or will they take into account that I just opened the business and had a huge amount of expenses? The IRS realizes that every business will not be profitable every year. The general rule is that you should be profitable 3 of 5 years. It is almost expected that a business won't be profitable during the start up year, too. One thing to think about, though. Those remodeling costs and the equipment should be capitalized...not expensed. Then they could be depreciated or take the Section 179 depreciation on them. By definition, they are not expenses, they are assets. It will raise red flags but if you can offer to provide all receipts to the IRS then they give you the benefit of doubt especially when it is a start up business. Good luck. Usa an accountant to do the tax for business, if you aren't sure about any expense. A small business will carry a lost for about 2 years. However, interview some accountants that will provide you on what type of expenses are tax deductiable. And you can carry your lost for next 5 years. Your startup costs must be capitalized, even items that are normally expensed. Once you start bringing income in Equipment is normally capitalized and depreciated, though you may be able to take a Section 179 deduction on some of it. Remodeling costs are normally capitalized and either depreciated or amortized over time. I'd suggest a consult with a CPA for guidance on this as well as assistance in setting up a proper bookkeeping system. The storefront tax prep mills are not an appropriate resource for guidance in this. It will NOT raise red flags. It's perfectly normal, and even expected, that a new business not make any profit in the first 3 years it is open. It's considered a loss, and will be subtracted from any wage income in the process of figuring your AGI. I'd have a CPA do your return, at least for the first year. They can tell you what expenses can be deducted (and might come up with a few you hadn't thought of), and will also let you know what items can be expensed and what needs to be capitalized and then depreciated, and how to do that. They can also advise you on the records you need to keep. Spending a few hundred dollars now can save you more than that in taxes and grief down the road. Businesses, especially new, small ones, often don't make money the first couple years, so the IRS won't freak out about that. Congratulations on getting your business up and running, and good luck. |
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