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Unusual Fed Tax question

VideographyVideography subscriber Posts: 401 Silver Level Member
edited January 2009 in Accounting and Financial Management
I have an unusual Fed Tax question that I need some advice on.
I did have income prior to 2007, and will have income this
and years forward.  But 2007 was a zero-income year due to a planned
move to another state, then a near death illness that knocked me out
for the rest of the year.
Will I still be able to deduct business expenses incurred during the
off year?  I had several domain and web server fees to keep up, I went
to some training courses and seminars and started developing business
relationships in the new location.  I also took advantage of an
opportunity to upgrade some of my capital equipment
Any comments would be appreciated
Thanks in advance...
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    glgcpaglgcpa subscriber Posts: 0 Member
    Did you mean 2008 perhaps or have you failed to file your 2007 income tax return on time?
    Aside from that, the general rule of thumb is that if you were "open and able to take customers" then you can usually deduct the expenses.  However, in a situation such as yours I would make sure that your tax preparer is comfortable with the situation, because it would be a high risk position to take.
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    VideographyVideography subscriber Posts: 401 Silver Level Member
    I`ve never failed to file, though 2007 was filed in October.  I am now preparing to send my EA the 2008 data and wondering if I made enough effort in late 2008 to justify the expenses in the eyes of the IRS.  As I said, I went to a few training seminars related to my field, kept up and developed new strategic relationships, and kept my website up to date (more or less, more less than more).  I am starting 2009 with renewed effort to find new business and will possibly end the year in the black.
    But, as you say, I am in a high risk (I.E. for IRS review) if my Schedule C shows zero revenue.
    Maintaining the domain name renewals and web site maintenance is probably explainable, but it`s the capital expenditures that I think would pull the trigger on my file at the IRS.
    At this point, I am leaning toward just claiming those two items as expenses and eat the cost of the capital equipment purchases as the price to pay for staying off the IRS radar.
    Thanks for your input - you have validated what my EA said.
    Steve
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    glgcpaglgcpa subscriber Posts: 0 Member
    If they were capital purchases I would put them on the return and not depreciate them until they begin being used in the business.  This will save those deductions for future years.  You won`t get accelerated depreciation, but you will get depreciation.
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    VideographyVideography subscriber Posts: 401 Silver Level Member
    If they were capital purchases I would put them on the return and not depreciate them until they begin being used in the business.  This will save those deductions for future years.  You won`t get accelerated depreciation, but you will get depreciation.

    Hopefully when I get audited, this might show the agent that I am not exploiting the tax laws, just honestly reporting reasonable expenses to suspend doing business for the year.
    Thans for the info.  I`ll make sure the EA knows what I m doing.
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