I started out a small business in mid December 2007 and i had about $40k in start up expenses. i generated about $4000 gross income in this half a month. for some reason i didnt include this business income and expenses in my 2007 tax return because i thought it's only half a amonth, so my plan is to include this income ($4k) income and $40k expense in this year 2008 business tax return. Now i'm doing my own tax and kindda get worry.

My question is:

is it ok to include 2007 income and use 2007 expenses in this 2008 tax return? or

did i make a mistake, i should file this portion in last year return?

or should i ignore 2007 incomes and expenses? will the irs find out about that $4000 income in the last half month of 2007?

What is my worst scenerio? tax penalty, etc...

Please help

No it is not generally permissible to include a prior years expense or income items into a subsequent tax years tax return. The IRS does not allow for this provision! I would recommend that you amend your 2007 year tax return to include omitted items of expenses.

Also, I do agree that you made a mistake but it is easy to rectify by filing an amended tax return, and I would not ignore these items of expenses as they will provide you with some type of tax benefits.

There is no worst case scenario other than not amending will cost you in terms of having a reduced tax benefit in 2007 and that you have not correctly reported your business income or losses for 2007.

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Thank you for a very helpful advice.


i do have other questions.

1. should i amend my 2007 return first before filing 2008 return or at the same time or does it matter?


2. just an educational question.
let say, my business didnt start in 2007, but started beginning of 2008. all the start up expense occured in later 2007, b/c it take quite 1-2 months to set up, how should i report this expense. still in 2007 tax return or 2008?

thank you!

can some one please help me with these questions? thanks!

To answer your other question, "if you did not start your business until 2008," then the expenses incurred prior to 2008 would be capitalized as Organization Business Start Up Expenses.

These costs are then amortized over 60 months usually! Thus, you would be able to deduct these costs at about 20% per year over 5 years! The term amortized is used instead of depreciated because amortization expenses refer to assets that are either intangible business assets or for Start up or Organization costs.

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Thank you, that's very educational!

You are welcome!

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