Should I claim business expenses on a store I didn't open?

Question

I worked as an employee from Jan-Sept with a company in 2006. I left this company in September to open my own business. I spent thousands of dollars towards opening my store, which I was supposed to open on December 5, 2006. Due to some major issues with my General Contractor, I was unable to open my store in 2006. I still have not opened it. I have had my store location leased since October, 2006.

My question is this...
Since I did not receive a single dollar in sales from my store in 2006, do I claim all of my expenses towards it anyway (we're talking about in excess of $75,000), or do I just file my income from the job I had from Jan-Sep, and claim my business expenses on my 2007 taxes since I will be open that year?

Please advise if you know how I should handle this. Thanks.

Answer 1

You must capitalize your startup costs. Once you start earning money on the business you can expense the startup costs. You can NOT take any business deduction for those costs in 2006.

Consult with a CPA for advice; you need professional assistance.

Answer 2

Claim the expenses that you incurred in 2006 on your 2006 tax return. Since you don't have revenue, all of the expenses will become your total loss for the year. If you have taxable income next year from the business, you can reduce it by the loss "carried over" from 2006. I think it's called NOL net operating loss.

Answer 3

The loss can be claimed in the year it was lost. Some may carry over into future years. I recommend to clients that they only claim losses for what they have receipts for (this is a good rule even if you do not have a business.) If you get audited, which w/ $0 income you will, it is necessary to have proof of everything you claim. So you would claim the loss this year, just be sure you have proof.