We lost our business, and our losses were greater than our profits. How do I document this?

Question

What if I were to be audited, how would they know what happened? Thank you very much.

Yes we have documentation through the bank, etc. I need to apply for financial aid though in a few months and am wondering how can I give them a copy of my tax return if I don't have one lol Thanks!

Answer 1

You file a tax return for the year this happened. You may be able to carry over your losses to your next year's tax return. Or, if you had other income for that year, your taxable income will be reduced by the amount of your business loss. You cannot claim a loss on a business for more than 3 years in a row. You need to file a schedule C and show with your records that you lost money for the year. Financial aid is determined on the previous year's tax return.

If you didn't file a return last year (this last April) then you need to file late. Your answers to this question are all in the 1040 schedule C instructions on the IRS website. It shows you line by line what to put.

If you are audited, you will need to provide more detail like receipts for the expenses you have claimed contributed to your losing money from the business.

Concerning the post below:

So, an audit would require you to prove the business was for profit and not a hobby if you have had a loss for more than three years.

Answer 2

Erik G's answer is mostly correct and good info, but you can lose money on a business more than three years in a row and still claim it as a business and claim the losses, as long as you can demonstrate that you were operating it as a business and trying to make a profit. See http://www.irs.gov/newsroom/article/0,,id=169490,00.html

Answer 3

Did you keep records?