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    jshook's Avatar
    jshook Posts: 4, Reputation: 1
    New Member

    Sep 22, 2008, 06:59 AM
    Starting Small Business for Tax Relief
    I have only 4 years to retire. My mortgage is paid and have just some Employee Business Expences that I deduct and Property tax . However that will probably not be enough this year for my the usual Schedule A deductions which I deducted interest on mortgage in the past that in the past lower my tax bill.
    I have started a tree nursery and have invested quite a bit of money to start. What do I need to do to make this a legal business so I can deduct my startup loses during the first year or two?
    This little business will hopefully be my extra income after retirement.
    Thank you in advance.

    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert

    Sep 23, 2008, 09:59 AM
    If you are receiving income from the business, it has met all the requirements for being a "legal" business in the eyes of the IRS. There is no IRS requirement to have a business license.

    Even if you have not received any income, if you are doing all the things that a business would normally do (soliciting customers, advertising, buying business equipment, etc.), then you are in fact running a business and can start deducting expenses on a Schedule C on your tax return.

    Now, once you establish your business, the IRS expects you to eventually show a profit. The general rule is that a profit must be shown in three of the first five years of business. However, that rule is NOT edged in stone.

    Many businesses experience heavy competition and require a number of years before they show a profit. As long as you are conducting your business as a business and are making progress towards the profit goal, the IRS will probably not challenge your deductions.

    Show too many years without a profit, however, and the IRS may rule that your "business" is in fact a hobby and then will disallow your losses all the way back to your first tax return. That is NOT a pleasant experience!

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