Many of our clients are in-home businesses. Entrepreneurs, start-ups, small businesses, child care providers, independent professionals, operators and so on.  What makes US-TaxLaws.com different is we’re more than taxes.  We’re about financial health.  We help our clients make their tax dollars work for them. They’re going to have to pay taxes… the question is how much and why.

In January the SCORE blogged about tax tips:

“If someone just started a business this year and they do not expect to earn any income from the business – what can they include as their expenses?  Even if you have not profited from your new business, you are still entitled to report any expenses necessary for your new business. Your ability to deduct these expenses against other forms of income you may depend on your participation level in the business. If you’ve spent more than you’ve earned in your first year in business, this loss may be available to be deducted against income from your past or in the future – so don’t ignore it! Good planning can help you evaluate the best strategy for putting these losses to work for you and can even result in cash back from prior tax years.”

We’d like to add to what they say.  Back in July 2014 we wrote about the Hobby Tax Trap.  It is about how the IRS can re-evaluate your business from a *for profit* to a *hobby*.  Why would they?  Because if a business doesn’t turn a profit, and still has deductions, they will evaluate whether it qualifies as a business.  How do they determine that? Simply put, “If the business has a loss for 3 of 5 consecutive years, the IRS will take a closer look at what they consider the “facts and circumstances” to evaluate whether the activity is actually a hobby or qualifies as a for-profit business.”

Why is this important?  Because if the IRS determines that your business doesn’t have a solid profit motive, they will re-classify your business as a hobby, then your past returns will be reviewed and deductions will be re-evaluated.   If they feel your *activity* is actually a hobby, they will add back the losses claimed by you that will result in back-taxes, penalties and interest.

New businesses need to plan down to the cent.  They need to anticipate the unexpected, and they need to know what to expect.  Don’t hesitate to engage a tax and financial professional to help you navigate these waters.  Don’t guess.  You are in a “need-to-know” capacity.

We do more than just tax preparation. US-TaxLaws is your best source for professional tax preparation and/or financial consulting services that include:

Personal Tax Preparation   Business Tax Preparation   Partnership Tax Preparation
Corporate Tax Preparation  Incorporation-Choice of Entity   Business Support Services
Corporate Compliance   Audit Representation  Retirement Tax Planning   Wills & Trusts, Estate Planning   Bookkeeping   Payroll