What if my single member LLc has loss every year?

[manbeing]

My business has some income but expense is much more, so that I claim loss on Schedule C every year.

In this case, will I have any trouble with my tax? Will IRS ask me to close my business?

I heard IRS only allows the business to have only 2 out of  5 years have loss, otherwise business touches the red line. Is that true?

I am kinda worried about that. I claimed all the things on the Schedule C honestly and have all receipts/records to support my business expense.

[MaryK4 · Accepted solution]

The IRS has a presumption that businesses are operating for-profit.  One big thing they look at is if it is a business versus a hobby.  Here is the link to the IRS Audit Guide IRC § 183: Activities Not Engaged in For Profit (ATG) - IRS.  It is wordy but very informative (and of course if you intend to continue as a business, it is time well- invested).  The IRS uses a standard of reasonableness- and keeping your records is a great step.  I like to put it this way: when you have a Schedule C business loss, the loss will offset any other income you have- which results in less tax for the IRS.  I have seen cases where "clever" people added a Schedule C with zero income, $50,000 in expenses and they paid less tax on their full-time W2 income (very obvious).   Even the way you worded your questions shows you are invested in the businesses, it is just not profitable yet.

[Mike9241]

when I had clients audited for possible hobby losses, one thing that helped the taxpayers win was to have a business plan which show steps that would be taken to turn the business profitable.   this doesn't mean that you need one. if the IRS should allege that you have hobby losses you would need to show how the activity will eventually become profitable.