Inactive Small Business

[alexrmcintyre]

My wife and I attempted to open a small business during 2022, and spent money on it on things that would normally be counted as business expenses in preparation for opening (mostly on supplies). However, it has not gone the way that we've planned so far, and don't have any sales/income for the business. We're also not really actively engaged in the business anymore/generally lost interest, so not likely to have any sales in the future either. We did get an LLC and tax ID number earlier in our opening efforts.

My question is: should we still be claiming our spend in attempting to launch as business expenses? Or would these only be counted at the point once we're actively doing business? Thanks to all for any guidance, just looking to make sure we do the right thing here.

[ErnieS0]

I’m not fully understanding your question. If you are still spending money on “business expenses” for a business that you are no longer actively engaged in, then those expenses are no longer business expenses, such as an ongoing subscription.

On the other hand, if you bought something for your business, I’m assuming you still had some interest or intent to run a business or you would not have bought those items.

[alexrmcintyre]

Thanks for the reply and apologies if worded poorly. We’re not currently spending any more money, no. However, we had been previously at a time when we were still intending to run the business, yes.

So in that case, would these prior items still be treated as business expenses? Even if we aren’t actively engaged with the business at this point? And even if we never actually made any sales (despite our intent to)? 

[TomK2023]

According to the IRS:

If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories. 

1. The costs you had before making a decision to acquire or begin a specific business. These costs are personal and nondeductible. They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility. 

2. The costs you had in your attempt to acquire or begin a specific business. These costs are capital expenses and you can deduct them as a capital loss. 

IRS Publication 535 Business Expenses

1. Open your return.
2. Click on Federal Taxes tab.
3. Under on Wages & income..
4. Under on Investment Income.
5. Under Stocks, Mutual Funds, Bonds, Other

You would report that the type of investment you sold was "everything else." and continue entering your information.