Do I have to report my wife's income in her own business if her expenses actually were more than what she made

Question

My wife worked for most of the year trying to start her own business. She was paid mostly in cash, but kept records of everything. After we totaled everything up, her start-up expenses were more than her income so she actually never "made" any money, ie. profitable income. Does she have to report all this or what should she do?

Answer 1

Yes, she must report this income and all expenses.

Startup costs must be capitalized in the year that the business is started and are then amortized over a 15 year period. She may be able to claim up to $5,000 in startup costs in the first year with the balance being amortized over the 15 years. From this you would correctly assume that if the total startup costs were $5,000 or less they would be fully deductible in the first year. See IRS Pub 535 for more information, especially chapters 7 and 8. Here's a link: http://www.irs.gov/pub/irs-pdf/p535.pdf

The limitation in startup costs may well result in her business showing a profit in the first year. She must pay any taxes that result from this profit.

Whether you file a joint return or separate returns does not affect the reporting requirements. It only affects who may be ultimately liable for any taxes owed.

Answer 2

Your wife would file a Schedule C as part of your joint tax return. She would report any income and expenses on this form. Start-up expenses are capitalized and amortized over 15 yrs. She can elect to expense up to $5,000 of start-up costs in the first year of business, and amortize the rest. You would need to file Form 4562 with your tax return also to report this.

A loss will reduce income, and therefore reduce tax liability.

Answer 3

She should file a Schedule C, Profit/Loss from business. She had no profit this year, and thus no income. In fact she may be able to carry forward some or all of her loss to future years. Call the IRS number for forms/publications: ask for their Schedule C with Instructions. Also their Publication for Small Business Owners. Check your library for JK Lasser, H & R Block and other tax help publications and books. If your return is to complicated to handle with confidence, seek a tax preparer or buy a software program for tax preparation. By way of example and not recommendation, for I have never tried either, Turbo Tax and Quicken are programs I have seen advertised.

Answer 4

If you choose to file separately, and your wife has no income, then she does not have to file.

If you file jointly, report the business loss on your joint return and reduce your taxes owed or increase your refund.

She would figure her business income and loss on Schedule C.

Answer 5

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Answer 6

Sure. You should file separately. She may be entitled to get money back, who knows? Since it is long form, you may ask your friends and family members where you can find a good tax person. I sure would not do this alone.