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Sole proprietorships file Schedule C with their Form 1040 during tax years when they are open for business.
You will most likely need to pay quarterly estimated taxes, if and when you have a net profit:
See https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
[do not forget state income tax, if applicable]
As a sole proprietor, you business income and losses will be reported on Schedule C in your personal income tax return. If you secured an IRS Employer Identification Number, then you would want to complete Schedule C even if income is zero because the IRS will be looking for the reported activity for that EIN.
If you incurred expense during this period when no revenue was generated, you may be able to deduct certain costs in getting your business ready to open. Other costs may need to be capitalized, depending on whether your business has actually were "open for business" to the public.
Hello @chelsearuitenberg !
Congratulations on your new business! Did you start your business in 2023? Did you have expenses? Even though you are just starting out and have not made any revenue you can still report the expenses if you have any. If you don't have any expenses or income there is no need to file the inactive business.
If you have other income from a job or other sources your would file that income as usual and also include the business expenses if you had any for the year your started your business.
You would file business activity for a sole proprietor or a Schedule C. This form is a part of your regular return and Turbo Tax would guide you step by step through the process. Here is an article that provide more details that will help you start your new business on the right foot! New Business Tips!
Let me know if that answered your questions today!
To clarify for @bkaytaxes , a blanket statement that all your expense are deductible even if you have no income is not accurate.
You indicated you had "no income". We would need to clarify if that meant you haven't earned or collected any income, versus being open for business but zero sales to date.
There may be some costs that can be deducted even if the business is not technically open for business. And some costs may have to be deducted when your business is actually up and running.
There are also options for calculating your depreciation. The depreciation provisions can allow you to write off all or part of the cost of certain assets entirely in the same year. These direct write-off provisions can change from one year to the next.
Lastly there are some assets that cannot be depreciated or expensed under any circumstance (i.e. Land).
As to your filing requirement, again, if you have obtained a federal EIN, the IRS will be looking for the tax returns for that EIN. That is why sometimes you file a zero return with no activity and merely to satisfy the IRS rules for reporting your taxes.
If you have other income or businesses it is NEVER correct to report expense from one business as deduction against another business. Each business entity should be filed separately reporting ONLY the items of income and expense for that entity. This is necessary because the businesses may be taxed at different rates, some are subject to Self Employment tax, some may even have losses that can only be deducted or that are partially suspended.
If you have other income from a job or other sources your would file that income as usual
Greetings @kfenwick
You are absolutely right, not all expenses are deductible. Sorry if you interpreted my response incorrectly. Turbo tax will walk the Taxpayer through the process to identify eligible expenses.
Expenses incurred prior to being open for business are start-up costs which are not deductible prior to being open for business. The link below is a decent guide.
https://www.irs.gov/newsroom/heres-how-businesses-can-deduct-startup-costs-from-their-federal-taxes
Otherwise, once open for business, all ordinary and necessary expenses can be deducted.
If a business owner has no income during the year in which they incur startup costs, they may still be able to deduct these costs on their tax return. The deduction may be limited in the first year and carried forward to future years.
@kfenwick wrote:
If a business owner has no income during the year in which they incur startup costs, they may still be able to deduct these costs on their tax return.
Start-up costs are not deductible prior to the taxable year in which the active trade or business begins per Section 195(b).
See also Publication 535 (2022), Business Expenses | Internal Revenue Service (irs.gov)
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