Business Tax Filing On Closed Business

[Turner]

s About Taxes)/business tax filing on closed business Advertisement Expert: Richard Fritzler - 12/15/2008 We closed our business in Oct. of 2008. This business operated at a loss for all 6 years it was open. Do we have to file these taxes since the business is no longer in operation?

[Ashwin]

s About Taxes)/business tax filing on closed business Advertisement Expert: Richard Fritzler - 12/15/2008 We closed our business in Oct. of 2008. This business operated at a loss for all 6 years it was open. Do we have to file these taxes since the business is no longer in operation?

[Jaryl]

The answer to that question is "Yes" file a final tax return.

Here are the unasked questions:

Could there be a problem with operating a business for 6 years at a loss?

Yes, the IRS has rules that allows them to say "if you are not profitable 1 out of 3 and 2 out of 5 years your business can be reclassified as a hobby"

How does this affect me?

Over the last 6 years while operating your business you spent money on a lot of items and service that your felt were reasonable and necessary for the business. you were able to deduct those expenses and get tax deductions. If your business is deemed a hobby, all those deductions are disallowed. It is now considered income to you.

You would be required to pay back the taxes on those deductions, since you would be late, the IRS also gets to charge penalties and interest.

Will the IRS do this?

I don't know, anyone who claims to know the internal workings of the IRS is probably lying. Someone may quote some statistics or percentage, however, statistics only applies in theory. In practice you will either be involved 100% or 0%.

I don't tell you this to scare you. I tell you this so that you can be informed. Now you can get prepared for the possible event. It would be much more scarry if the first you found out about this was from a notice by the IRS.

All of this overshadows the other reason to file the final tax return, because business losses can be credited to you and you might be able to deduct them against ordinary income in the future. Failing to file, means there will be no record of the losses.

Richard Fritzlerhttp://www.owelesstax.comhttp://www.nevadacorporateservices.com

phone 800 590-6612