Originally Posted by gretchy
#1;My husband and I purchased a fishing vessel and limited entry permit in Alaska. We made repairs to the boat, and maintained it for the year 2013. We did not start actually catching fish until 2014. Can we file for 2013 and show a loss for our investment into the new fishing business??
#2;We invested $150,000 total. Or do we have to wait until 2014 federal taxes are filed to deduct our expenses incurred in 2013?
#1;I assume that as most other TPs you use cash method; any expense that is business related can be deducted on your Sch C. as you know, you can only deduct the expense against your profits. Since you haven't made a profit yet, then you cannot "deduct" it. You can, however, report it on your Sch C and it will end up being reported as a Net Operating Loss. If you have other income, that loss can be applied against your other income in your overall taxes on your 1040. So, once you start your business in future tax years and you start turning a profit, you can carry forward and deduct the biz related losses against the profit.
#2;as mentioned above; if the amount on your 1040 line 41 is a negative number, use Form 1045 to determine the allowable NOL. You may apply an NOL to past tax years by filing an application for refund or amended return for those years. This is called carrying a loss back. As a general rule, it’s advisable to carry a loss back, so you can get a quick refund from the IRS on your prior years’ taxes. However, it may not be a good idea if you paid no income tax in prior years, or if you expect your income to rise substantially in future years and you want to use your NOL in the future when you’ll be subject to a higher tax rate. Ordinarily, you may carry back an NOL for the two years before the year you incurred the loss. The NOL is used to offset the taxable income for the earliest year first, and then applied to the next year or years. This will reduce the tax you had to pay for those years and result in a tax refund. Any part of your NOL left after using it for the carry-back years is carried forward for use for future years. There are two ways to claim a refund for prior years’ taxes: You can file IRS Form 1040-X within three years, or you can seek a quicker refund by filing IRS Form 1045. If you file Form 1045, the IRS is required to send your refund within 90 days. However, you must file Form 1045 within one year after the end of the year in which the NOL arose. You have the option of applying your NOL only to future tax years. This is called carrying a loss forward. You can carry the NOL forward for up to 20 years and use it to reduce your taxable income in the future. When you do this, you must attach a statement that includes a computation showing how you figured the NOL deduction. If you deduct more than one NOL in the same year, your statement must cover each of them.