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dlmack1 · Nov 27, 2007, 07:22 AM

Hello, I will try to keep it quick and simple. First, I am just a person, did not start a company or corp. I purchased a "income generating" website in 2007 for 15k. To make a long story short, has not made money this year and will not. Basically I am out 15k, but I can recoup some of that lost money if I can 1099 the guy for the 15k, thus reducing my taxes for the year. Is this possible? I do not want to take the general 3k loss on the year, for the next couple years. That does not help me much. Thanks is advance!

ScottGem · Nov 27, 2007, 07:29 AM

Nope. You made a purchase on speculation. A 1099 is issued to record income paid to the party. You didn't pay him any income you purchased something from him. Assuming you didn't purchase the site as a coprorate entity, you will probably file a Schedule C this year. The purchase price of the site is an expense against income. Since there was no income, you report a loss that is used to reduce your other income. Whether you can expense the whole 15K in one year or not, I'm not sure of. Hopefully ATE will answer that part for you.

But sending the seller a 1099 is not an option.

dlmack1 · Nov 27, 2007, 08:50 AM

Hi Scott, thank you very much for the quick infomative answer! Is there anything I can do to realize this lump sum loss in the 2007 tax year? Start a "legal" company... I still have a month left in 2007. The guy I purchased this from, he won't even have to pay taxes on this income, because nobody is reporting it? That doesn't seem right?

thanks again

- -Dlmack1

ScottGem · Nov 27, 2007, 09:34 AM

Hmmm, Now you got me thinking. To be honest, I'm not sure how you would ensure that he reports it as income. But that's really not your concern. Your concern is how you report it as an expense. I don't know if incorporarting after the fact does it.

Our resident tax expert should be along soon to provide more detailed advice on that.

AtlantaTaxExpert · Nov 27, 2007, 07:48 PM

DLMack1:

Yes, you should and are required by the IRS to file a Form 1099-MISC to report the $15,000 you paid him.

Yes, you CAN start a business for this website IF you had a profit motive. You need to keep at it for a couple of years to try to make some money. You will be able to deduct the losses generated by your attempts to make money, but you have to amortize the initial $15K expense over five years.

MukatA · Nov 28, 2007, 05:03 AM

With your tax return you will file schedule C or C-EZ (Form 1040) to record your business income and expenses. The 15K you paid and expenses prior to starting the business. It is a capital investment that you must a amortize. You can elect to currently deduct up to $5,000 of business start-up costs paid or incurred during the tax year.

For start-up costs paid or incurred after October 22, 2004, the amortization period is 180 months. The period starts with the month your active trade or business begins.

AtlantaTaxExpert · Nov 29, 2007, 10:08 AM

The 180-month period (15 years for those who cannot do grade school math) is what is called for.

However, there is a special provision in the IRC that allows the amortization period to be shortened to five years. However, it MUST be claimed on the first tax return NLT the original filing deadline. You CANNOT go back and amend your return to claim the shorter, five-year period.