Can I deduct business loss?

[bobalbertfamily]

As a side business attempt, my son tried to sell tee shirts and hats.  He did it for a few months, along with his other 3 jobs, but it didn't work out.  Overall he lost about $1,000.00 on the venture.  Can he use TT Home and Business and use the Business section to show his business loss, den though he only did it for a few months and discontinued it all?  Thanks,

[Hal_Al · Accepted solution]

Simple answer: yes. As DianeW explained, even a short lived business is allowed to deduct losses.

But taxes aren't simple. Two (maybe more) issues to consider:

1. Was this a real profit motive business or just a hobby. The deductions are handled differently. For a full explanation, see https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide

2. What did he do with the left over inventory. if he kept it for personal use, he does get to write off the cost as a business expense. "Personal use" includes giving it away (making gifts) to friends and family.

[bobalbertfamily]

Thank you so much.  One question on part 2 ( What did he do with the left over inventory. if he kept it for personal use, he does get to write off the cost as a business expense. "Personal use" includes giving it away (making gifts) to friends and family).  How would we "write off the cost of the items he kept for personal use?  In the Business Expense section  of TurboTax Home and Business?  What title expense would it be from that list?  Thanks again

[Hal_Al]

It would go on line The point is that you do NOT get to write off the cost of items you keep for personal use.
As for the IRS forms, the cost of the unsold items goes on line 36 of Schedule C as a negative number.

[bobalbertfamily]

I am a little confused.  When Turbo Tax asks to enter the cost of items kept for personal use, it doesn't say anything about entering it as a negative number.  You just put the amount in and then it puts it on Line 36 as a positive number and taxes go up.  Where would it say to enter it as a negative number?

[Hal_Al]

In TurboTax, you enter as a positive number. It will go on line 36, as a negative number (actually subtracted from your purchases)

[bobalbertfamily]

OH!!  That makes sense!  Thank you for all the help

[DianeW]

Yes, if he engaged in the activity to produce a profit, then he can choose to use the business section to report it and deduct his loss against other income.  

The fact that he chooses not to pursue this business venture does not change it into a hobby. Assets, such as machinery and/or equipment cannot be depreciated when they are placed in service and removed from service in the same year.

[bobalbertfamily]

Thank to so much.  How would we write off the items left over for personal use, no longer for sale?