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Do you take tax deductions on your business regardless if you make a profit or not?

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asked Oct 12, 2016 in Other Questions by WhitneyJaqueline IBO Specialist (30,530 points)

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YES, I pay taxes!

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Even if you don’t make enough to owe taxes, technically the IRS still wants to know about it.

The IRS makes a distinction between a money-making hobby and a money-making business. If you are for profit, you are a business to the IRS. And you’re all about making a profit, right? Of course!

Whatever you consider yourself, if you make money from your activities for at least three out of the last five years, the IRS will label you a business. That gives you some special hoops to jump through.

Let’s continue on with the assumption that you want to make decent chunk of change from whatever it is you do on the side. We’ll also say you want that income to be sustainable over a period of years.

Regardless of why the IRS says there’s a difference between a “hobby” and a real business, there’s another factor here to consider. It’s important to take yourself seriously! If you want to create a side or small business to continue earning money in a big or more professional way, you need to treat things that way from the start: as a business.

Having the right mindset will set you up nicely for success. If you take yourself seriously, as a real business, then other people will too.

“Do I have to pay taxes on, even though I only made X amount?”

Again, the answer is probably YES. You have to pay taxes — and regardless of whether you owe or not, the IRS expects you to report all income (no matter how small).

This means keeping careful records is critical. You want to claim every deduction you qualify for and write off expenses where you can to ensure you keep your tax bill as low as possible.

answered Oct 13, 2016 by ebest IBO Specialist (60,870 points)
Great detailed answer and gives a lot of value Anne-Marie!
Loved the comment, so much information, and as far as the keeping of records - yes!
What a great answer Anne-Marie.
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Oh, absolutely. ALL the time. We have a very interesting corporate structure here, as we have 2 adults in house, and my oldest son out of the house, and between us there are 5 businesses total--2 LLC corporations, one INC, and two subsidiaries that are simple companies, one under one of the LLCs, the other under an INC. that also has an LLC under it.

One of my largest expenses is good accountants, as I refuse to pay our rogue government any more than is absolutely required. So every once in a while I end up starting a new business (as I did this year), to make excess money go away.
 

The drawback is the IRS's passion for auditing one or more of the companies--and my other half and I personally--every few years. But I am proud to say they have never managed to extort any more out of us than we said we owed in the first place--and twice in the last 8 years or so they had to give us back money.

If you're a BUSINESS, as opposed to a HOBBY--then act like one :-). That means keeping extremely detailed records, spending the time and MONEY to make sure you are fully legal and compliant as well.

Besides, if you have the structure we do, because we have companies as divisions of OTHER companies, the losses of one can offset the profits of another--hence me starting a traffic exchange this year and trying valiantly (though unsuccessfully) to lose money. But I still have a few months left LOL.
answered Oct 15, 2016 by fortunesfavorite IBO Guru (1,460 points)
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Absolutely. It is always good to start the business on the right side at the beginning.
If one make over $ 600 a year on the business it has to be reported and if the business
Is legit one will get a 1099 form.

Regardless of  lose or profit that is on the record,  the benefit of having a business is one
Will get a dedication of all business related expanses, so it is good to keep a good record
What is coming and going regardless of lose or profit.
answered Oct 15, 2016 by Abe IBO Guru (4,090 points)
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Yes, I too have pay my taxes which is normally deducted by my banker whenever my cheques are lodge at my local banks as well.
answered Oct 21, 2016 by garywelsh IBO Specialist (63,960 points)

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