Can I deduct Business Expenses.. Without Income? from Personal Income? from a Past year?

welcome back in this video I'm answering a few questions that are related can I deduct business expenses even if I have no income can I deduct expenses on Schedule C from personal income can I deduct a business loss from personal income what if I had expenses the year before 2018 started my business in 2019 can I deduct those expenses this year to answer this question we're going to talk about primarily startup costs and organizational costs and I have a spreadsheet template I'm gonna show you so that you can see clearly how all of this works we'll also talk a little bit about a business versus a hobby and we'll get this all squared away for you really quickly if you're new here my name is Amanda you're watching the business finance coach where I simplify business all the technical stuff because I believe that the world needs what you have inside of you and what you want to create and these are just tools that can help you get there and I certainly hope to help you get there faster so if you're new here consider subscribing okay so the first question I want to address is can I deduct business expenses if I have no income so this is a great question and the easy answer is yes you can but there are some things that you should check first the first one that would come to my mind if someone was asking can I deduct expenses but I have no income is I would say has your business started yet so you have to choose the date your business starts and that what determines that is that you're ready to take sales you're actively soliciting sales and income from customers and clients even if you haven't gotten paid yet in that situation as long as you're open for business you can deduct your related business expenses you're just going to have a loss because you haven't earned anything yet so let me give you an example that's really easy to understand this if you think about a store and someone who's opening an in person location store downtown right they're gonna spend a lot of time and money planning that but until they actually open their doors for business physically open them right they're not their business hasn't started right because their doors aren't open if they're not selling products or services any other way then all of those costs up until the day that they open their store doors are startup costs once the doors are open even if they get no customers they can deduct all of their expenses from that point on but those expenses that happened prior to the doors opening those are called startup costs and or organizational costs and these are two categories that I'm going to show you how to calculate in my spreadsheet template from my small business school but first let's address a few other parts of this question so can you deduct these expenses if they were from the prior year so if they're from 2018 and then in 2019 you started your business and you just had those expenses as long as you started in 2019 then it would be absolutely correct to begin deducting those expenses and I'll talk about totaling them up in the worksheet here in one second the other thing I want to mention was the question of can I deduct business expenses from personal income so if we take a look at the form 1040 you can see where our business income from Schedule C comes from so on Schedule C we have our total business income minus our total business expenses equals net income or loss that net income or loss which it will be if you have no income in all expenses flows to the income section on form 1040 and it will offset your other types of income w-2 wages investment income or any other types of income in this section personal income but there are a few questions at the bottom of Schedule C that guide you as to whether you can you can actually deduct that or not now most people I talk to do qualify but you just want to consider they're called at risk rules and passive income rules so as long as you are the one actively working in the business and you're working a serious number of hours 500 per year and there's a bunch of other criteria I won't go into in this video but as long as you're actually working in the business and no one else has invested in your business then yes you would qualify to deduct your loss but I want to just say I see a lot of people online telling people oh tax loophole start a business and deduct your expenses from your other income well that is tax fraud and there's even criteria to look at your business to know whether it's really a business so going back to that example with a person opened a store downtown let's say that that store was actually like a hangout area where it was a restaurant but they didn't really want people to come in other than people they knew and or maybe it was some you know hobby that the person has like woodworking but they didn't really bring other people in to the place they were just gonna deduct their expenses from their hobby yeah not okay there's a bunch of criteria that goes through that but I have other videos where I've gone through Hobby vs. business you know if you have a business or a hobby is it a real business are you trying to make a profit you can only take a loss so many times before the IRS is going to audit you so don't just be deducting hobby losses that's not legitimate okay so that's covered all of our questions let's take a look at my template here and I'll show you what happens with all of those startup and organizational costs so I have an entire automated business spreadsheet template that that's part of my small business school and so you could be using that to record your expenses and it would look something like this section here and you could just down here add in each of your expenses and these are some examples I have here so you can see I categorize them based on this column here as startup cost this one was paid to upwork hired a contractor to make a logo for $4,000 and the date so be sure to keep all that type of information especially the business purpose now the difference between startup costs and organizational costs you can see our organizational cost here says LLC registration lawyer to write the operating agreement so or cost are related to forming the legal entity like an LLC or a corporation so it's only those specific costs that go under or cost everything else that's a normal business expense goes under startup costs okay and so this spreadsheet is set up where you would just keep entering your cost and enter all the details business expense and all that that's what you need for your records so they would all be listed here you could keep going as much as you need then up here it's summing the total amount of start-up costs and the total amount of organizational costs okay now the rule is a little complicated that's why I wanted to show you the worksheet as all things taxes are so in the first year you can deduct up to five thousand dollars of start-up costs and five thousand dollars of organizational costs and so that's why it's worth dividing them out but only if you spent more than five thousand dollars if you spent less than five thousand dollars don't even worry about it you can just deduct the full amount in the first year that your business files taxes now if you have more than five thousand of startup or organizational costs then what happens to that remaining amount so you can see here we had a total of six thousand startup five thousand eight hundred or costs you take the remainder and you have to do what's called amortize it essentially we're gonna spread it out over seven or I'm sorry 15 years which is a hundred and eighty months so this is dividing what's left over a hundred and eighty months so you're going to get five dollars and 56 cents in this example of startup costs per month four dollars and forty four cents of organizational cost per month so you put the amount of months for your current year that you were in business and then it's gonna calculate the total deduction for this year so I intentionally just made these costs a little over five thousand so that we could see this example so you have to calculate that first year based on the number of months that you were in business then the next fourteen years you get the full amount of this times twelve months so you can see two and three we keep getting that amount every year and you can see the number of months down here because remember we get a hundred and eighty months so you can see the total months down here and so it would be a hundred and eighty months we would only get nine months worth in year 16 so you obviously need a spreadsheet to keep track of this and remember where you're at you can also see here at summing the total and we're actually a little bit over our initial amount that's because of rounding so in your 16 you should adjust it so that you don't deduct more than your initial amount okay I hope that makes sense I'd love to hear from you in the comments below if you have questions so if you're interested in getting this template check out my small business school it includes five courses that cover everything small business owners have ever asked me about and I guide you through eighteen steps to get your accounting and taxes organized in a spreadsheet as well as forming an LLC and choosing your business entity and understanding it all but if you're just getting started I give away a free business spreadsheet template that includes a basic accounting worksheet great for tracking stuff like this quarterly taxes and end-of-year taxes so that is free be sure to check it out it's the first link in the description below this video otherwise I'd love to hear from you in the comments below and I'll see you in the next video bye

Channel: Business Finance Coach

Views: 55,469

Keywords: Can I deduct business expenses without income, can you deduct expenses on schedule c with no income, filing taxes for small business with no income, can you claim expenses before a business starts, can I deduct startup costs with no income, how long do you amortize startup costs, what are examples of startup costs, startup costs, business startup costs, how to deduct startup costs, startup vs organizational costs, organizational costs

Id: C0mJt53atHQ

Length: 11min 21sec (681 seconds)

Published: Tue Jan 07 2020