How many years can you file a capital loss

[sand1223]

I have a business that has suffered loss now for two years and now going into third year.  I am closing it down in 2017.

Can I still claim the loss this third year?

[Carl]

yes. There is no limit on the number of years you can claim capital losses. But there is a limit on the amount that is 'allowed" each year. You still claim the full amount. The program will "know" what the allowed amount is, if you exceed it, and takes care of it accordingly.
Is this a SCH C business? I ask, because when you close it down in 2017, you MUST file a SCH C for your 2017 taxes and make SURE you report not only that you closed, sold or otherwise disposed of the business in 2017, you also have to show the disposition of any and all business assets associated with the business too. That's important, but you can deal with that on your 2017 taxes when the time comes. We'll still be here if you need help then.

[fanfare]

There doesn't seem to be any indicator on Schedule C that a business is closed,  nor sold or otherwise disposed of.

[Carl]

If you select the option for "this business was close, sold or disposed of in 2016", and you also correctly and completely report the disposition of all business assets, then the schedule C will have "FINAL" across the top of it. At least, that's my understanding, as I myself have not closed a SCH C business yet. I'm still operating.

[sand1223]

It is a sole proprietorship.

[fanfare]

Per the IRS website
"The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1."

No mention of Schedule C sole proprietorship.

I asked TaxACT customer support for their advice, they never mentioned anything about a special notation on Schedule C.

[sand1223]

ok - thanks

[TaxGuyBill]

Yes, you can claim a Business Loss for the third year (it is not a Capital Loss).

However, you do need to be sure it is considered "business" rather than a "hobby".  A business means you are definitely putting forth effort to earn a profit.  See link for details.

https://www.irs.gov/uac/business-or-hobby-answer-has-implications-for-deductions

[sand1223]

If I show no loss or profit from 2016 and show closed as of 12/31/2016 - do I still need to file a Schedule C?

[sand1223]

I think I would be safe then to just let it close out and just file a regular 1040 Schedule individual tax return, correct?

[fanfare]

Again from the same IRS webpage
"You must file an annual return for the year you go out of business".

[TaxGuyBill]

If it was a business, the business was still open, and you had income and/or expenses, you need to file Schedule C.

[Carl]

The IRS does not know your business is closed, until you report it to them as such. So even if you have no income and no expenses, you still need to file a SCH C to show that you closed, sold or otherwise disposed on the business. If the business has *any* assets, to include vehicle expenses, (even if it's your personal vehicle used less than 100% for business), you must show the disposition of those assets, which basically is your legal affirmation of the desolution of the business.
Failure to do this will catch up to you in the form of an audit usually, about 18-24 months after the first year you don't file a SCH C, if the IRS is expecting one because you've not reported the disposition of the business previously.