What if I did not receive any payment for 2019, bu...
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What if I did not receive any payment for 2019, but was working building my business? can I still claim a home office deduction?

I am working in Real Estate and did not close any deals in 2019
3 Replies
Employee Tax Expert

What if I did not receive any payment for 2019, but was working building my business? can I still claim a home office deduction?

You can enter the deduction (whether actual or simplified) but it won't be allowed this year if you showed a net loss on Schedule C...but it should carry over to next year when (hopefully) you will have made some money.

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Level 15

What if I did not receive any payment for 2019, but was working building my business? can I still claim a home office deduction?

@BillM223 's response is not all inclusive. So I'm just elaborating on it a bit for added clarity.

If your business is a sole proprietorship or single member LLC and you are the one and sole owner of the business, it gets reported on SCH C as a physical part of your personal 1040 tax return. (Doesn't matter if you're filing a joint return either.)

If your business was not "open for business" on or before Dec 31 of the tax year, then you will *NOT* report *anything* on *any* tax return concerning this business. Absolutely nothing. Not a single penny of anything.

If your business officially "opens" in 2020, your very first SCH C will be on the 2020 tax return you will complete and file next year.

 - All expenses incurred prior to being "officially" open for business are referred to as start-up expenses. You can deduct up to $5000 of start-up expenses in the first year the business is "open for business". It *DOES* *NOT* *MATTER* in what tax year those startup expenses were incurred either. Heck, I've seen businesses open that had start-up expenses spread over the prior 3-5 years. Not a big deal. They are claimed in the first tax year the business is "open" and not before.  But some common sense needs to come into play here.

 

While you can deduct a maximum of $5000 in start-up expenses in the first year, if you have more than that amount then anything over $5000 is amortized (not capitalized) and deducted (not depreciated) over the next 15 years.

But if your business does not have $5000 of *TAXABLE* business income to deduct your startup expenses from (up to the $5000 limit) then it makes absolutely no sense to claim the full $5000 maximum that is allowed. It *WILL* *NOT* help you on the tax front since your startup expense deduction can only be deducted against your *TAXABLE* business income.  Therefore, if you only make a $2000 taxable profit that first year in business, only claim $2000 in startup expenses that first year. Then the tax on your business income that first year will be ZERO. What's left of your startup expenses is spread over the next 15 years.

If you close, sell or otherwise dispose of the business before the 15 years is up, that's not an issue. You are allowed to deduct all remaining startup costs in the year you sell, close or otherwise dispose of the business, and that "final business year" deduction is not limited to being deducted from the business income only.

I can provide more clarification on more stuff if you need it. But in the interest of reducing "information overload" I'll stop for now. 🙂

Level 15

What if I did not receive any payment for 2019, but was working building my business? can I still claim a home office deduction?

Oh one more thing. If your business was not "open" in 2019, then you can't claim a home office deduction for 2019. The "in service" date of a home office can not be before the "open" date of the business. Period.

 

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