How many years does the IRS allow me to have deductible business expenses before I start earning anything?

Answer 1

It's not just the number of years. You have to be able to show that you are running it as a business, and are trying to make a profit. If you report a loss several years in a row, expect an audit where they ask you to prove this. See http://www.irs.gov/newsroom/article/0,,id=172833,00.html

Answer 2

If you actually have zero earnings, I think the IRS will come down on you almost immediately. You would have to show at least some earnings after your startup year, even though your deductions may be greater than your earnings.

If your earnings are still less than your deductions by the fourth year, it is likely that the IRS will question whether you are in business to generate a profit, or if you are engaged in an acitivity whose purpose is to generate a loss and lower your taxes artificially.

If the IRS determines that you are not in business to make a profit, your prior years' deductions will be disallowed and you will owe taxes on the deductions taken.

It is more complicated than this of course. There are many factors the IRS considers to determine whether you are in business or not. The type of business is also considered. Some singled out businesses, like horse racing, have a longer time in which to show a profit.

Answer 3

You are referring basically to hobby loss rules. You are supposed to earn a profit for 3 out of 5 years for the IRS to judge a business as not being a hobby. But if it's a true business, and not something you do in your spare time, I don't think the IRS will give you any troubles. They look at a variety of things besides the 3 out 5 years rule to determine if it's really a business or something you do on the side.

Answer 4

zero.