Am I allowed to claim a loss the first three years of trying to start a business on my tax return?

Question

2007 tax return question

Answer 1

Yes, just have your paperwork on hand in case you get an audit. Also, make sure that what you are reporting a business and not a hobby.

Check out the site below for most of your answers, but it probably a better idea to consult a paid tax preparer.

http://www.irs.gov/businesses/small/index.html

Answer 2

Yes.

There is nothing against claiming a legitimate loss. In fact, urban legend has the IRS expecting businesses to claim taxable losses for the first three to five years.

Depending on what type of entity you have, now might be the time to evaluate its structure.

Meaning - If possible you'd want those losses to pass through to you. (They wouldn't in a C corp.) Unless you are expecting substantial income, it is all the time value of money.

Answer 3

There isn't a time limit, but your records must show that you were TRYING to make a profit, and it's not just a hobby.