Can I claim business expense after date business closed?

[orchid9]

I understand you can enter a business expense if it is prepaid during the time you are still in operation, and do not have to prorate it when filing your final tax return.

But,..

Can you enter business expenses after the closing date, if they pertain to your business such as:  (1) continuing monthly payments using quick books to figure closure of business, taxes.  (2) contract not completed, but still obligated to pay monthly payments, such as Cox. (3) Fee from closing merchant account.

Thanks!

[JulieR · Accepted solution]

Yes. Even though you have ceased to do business, you can still deduct these business-related expenses.  If you have or expect to have continuing business expenses, related to this closed business, in 2019, you should wait to file your final business return until next year.  

[scook7878]

I didn't see this until after I filed.  What if you submitted the 2019 tax indicating closed.  Can you revise or still deduct in 2020?

[HelenC12]

@scook7878   If the business expenses are for tax year,

1. 2019 - amend your 2019 income tax return(s).
2. 2020 - close the business on your 2020 income tax return(s). Report the business and make sure you select I stopped [your business] in 2020 on the Tell us how long you've worked in [your business] screen. Click here to read more.

[TBorch]

Currently, my business is closed because of my health issues. I don't plan to be closed for good. If insurance approves my surgery (they have been denying it for over a year) recovery is up to 2 years. There is no way to tell how much permanent nerve damage there will be and how much functionality I'll regain. This could put my business on hold for several years. Because I'm not planning on closing for good, can I still continue to itemize the business expenses I'm still paying for even if I can't show any income? Example: mortgage interest, insurance, property tax, licenses, etc. 

[MaryK4]

No, if you are not currently active in the business (no business income) you should not deduct expenses- the IRS is very strict about self- employment with zero income and expenses only because it creates a loss that can offset other income.  

@TBorch

[tennman1990]

What I am reading elsewhere makes it seem the CARES ACT changes this. Also, it seems to be different for businesses vs individuals.

[MarilynG1]

@tennman1990 Individuals don't claim Business Expenses.

If you reported that you closed your Business in 2020, you can still report Business Expenses for 2020 on your Schedule C in your tax return.

Click this link for more info on Closing a Business. 

This link has detailed info on Self Employed Corona Virus Relief you may find helpful. 

[Carl]

@JulieR  @scook7878  @HelenC12 @TBorch @MaryK4 @tennman1990 @MarilynG1 

For those of you I flagged in this post, either you answered one of the flagged posters, or you asked a question pertaining to your business situation. Here's the problem.

Only the original poster in this thread, @orchid9 has clearly identified that they are using TurboTax business, which indicates they are NOT filing a SCH C for a disregarded entity type of business. They are filing either for a multi-member LLC or a corporation. This matters for the answers provided. So if those of you who asked a business related question, I would assume the answer provided applies to either a partnership, multi-member LLC which files a 1065 tax return, an S-Corp which files an 1120-S tax return, or a C-Corp which files an 1120 tax return.

I would suggest you each post your own individual question, so that you can clearly identify what version of what program "you" are using, to help ensure the answers you receive are correct for "your" specific situation.

Just my two cents. Hope it helps.

[JSWIZCPA]

YES maybe!!    I know its late, but i see some inaccurate answers being repeated.  

As a former S Corp owner and if obligated to pay expenses, then yes you might be able to claim them as capital loss.   The Arrowsmith vs Commissioner ruling can be googled and easily explains this.  

[DaveF1006]

This Court ruling does not address the fact on whether or not a business can deduct expenses after a business has been closed. From what I read, it covers the sales of capital assets and whether these could be considered capital or ordinary losses. 

Now to address orchid9 concern, you may be able to claim business expenses after the business has closed but you will need to file an amended return reflecting the business expenses that occurred after closure.. If you filed a final return for the business, then you cannot file a original return for the business that has been reported closed.  I would however not doing this every year to reflect the reoccurring payments to Cox.

@orchid9 @JSWIZCPA 

[JSWIZCPA]

Yes, you are correct, to be sure, I qualified my remarks with you MAY be able to.  I'm not here giving advice just correcting all the Nay's.   They may be deductible.  The key according to some sources is that you must have been legally obligated as the former owner to pay those expenses. I have a client with some recurring legal expenses he couldn't foresee prior to closing the S Corp a few years ago.  The only reason he has the expense is that he's the former owner and they resulted directly from his owning the business.  They don't exist for any reason but for his ownership and therefore is obligated to pay.    

[DaveF1006]

Yes, I do see your point. This though may address a legal interpretation rather than a taxable one and is drifting into areas that we aren't allowed to address. My position is a safe in the respect that it won't raise red flags with the IRS because it may morph into a long drawn-out legal process that may benefit no one.

I appreciate your insight though.

@JSWIZCPA 

[JSWIZCPA]

Sorry, one last bit you might be interested in.  Since yes this could be a legal drama there is support for the obligation not many CPA's I know are aware of. 

A client of mine a few years ago paid out significant amount to settle debt, and was able to deduct it.  We hire a high buck legal firm to provide that tax basis and letter for the deduction based on obscure rule.  Without getting into the nitty gritty, the main point was to protect is name, reputation, and future business reputation.   See IRS Rev Rul 73-226.   Though I was vaguely aware of this I had no actual usage and therefore requested he see a law firm are larger cpa firm.  He paid for the legal tax opinion.  There is an acquisition of goodwill and a "preservation" of goodwill which are deductible but treated differently, the acquis is 15 year am, preservation is deductible currently. 

This leads to this discussion and to the legal obligation.  One my client would get sued by the attorneys that represented him as former president of the co, he'd mostly likely lose, it was related to existing legal business of the co. but what he thought had ended dragged on.  He is more than comfortable taking that stand and the attorney's back it up in writing.  This also could be seen as a preservation of goodwill.  Though we aren't taking that stand and deducting it, he'd rather take the capital loss and be less aggressive, but should he get audited, its' nice leverage.  This is smaller dollars the original client case was for high six figures.  That's preservation of GW!!!   

Definitely its a case by case area and for large $$ worth getting a legal opinion covering it.