If you invest money into your business and the business loses money, how do the taxes work?
I want to start a business and I know most lose money in the beginning so I was wondering how the taxes work between filing business tax returns and personal tax returns. I wasn’t planning on doing a DBA so there would be two returns but do I claim business loss of revenue AND personal loss of investment?
August 15th, 2010 at 8:48 am
Un less your business is incorporated, DBA or not, there is just one return – your business income is shown as part of your personal return.
If you have a business loss and have other income also, then if you have a business loss it is netted out on your form 1040 with your other income.
August 15th, 2010 at 9:41 am
The money you invest in a business is not deductible most of the time. If you purchase assets they are normally depreciable which allows you to expense a portion of your investment. Revenue-Expenses=Profit or Loss. That profit or loss for a sole proprietorship is reported on a Sch C and carries over to the ordinary income section of your 1040. If your business is structured as a partnership more complex forms are filed but the principle remains the same. If you are losing money because your expenses exceed your revenue it is subtracted from any other form or ordinary income you have and the net effect is that it reduces your taxable income and tax. You may need to file a sch. se and report and pay self employment taxes and dont forget to look into the requirement that you may have to make estimated tax payments. A corporation is a totally different entity considered in and of itself for tax purposes. Good Luck with you endeavor.
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