If I recently started a new business, and I made expenses to get started before making revenue, do I have to show that I made some revenue to write off any expenses made for tax benefits?
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Your business with its records on all the expenses will need to be organized and verifiable. Just having a loss is not enough on its own. Needing to be able to show a profit-making motive and business plan to substantiate your deductions. Deductions without comparable income or verifiable potential income puts the deductions at risk and the entire amount disallowed as being just a hobby.
The IRS has many factors in considering if there is a business with actual deductions or a hobby with nondeductible losses. Some of the factors are
All facts and issues need to be considered. With start up restaurant there would be expectation of profit seen in the first couple of years but a business raising racing horses could take close to 20 years. So it is not only the questions but also what might be considered comparable for the activity. Not showing a profit for a business tax return can raise questions and increase the risk to examination. At the same time if you have properly gone about setting up your business, it is ok to write off the business losses.
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