Originally Posted by mishiankur
First of all thanks a lot for such a quick response, Wnhough.
Yes I am a US resident. Could you please provide your opinion on below questions?
1. My wife hardly made any income (< $500) in 2016 but we spent close to $6k as the startup cost and $2k as the operational cost. You mentioned that I can claim up to $5k per year as the startup cost. Can I additionally claim the operational cost of $2k?
2. The overall income from the business will be negative. Therefore, will I be get the tax refund when filing jointly?
1. My wife hardly made any income (< $500) in 2016 but we spent close to $6k as the startup cost and $2k as the operational cost. You mentioned that I can claim up to $5k per year as the startup cost. Can I additionally claim the operational cost of $2k?====>It depends; say if you started your business in 2016, had startup costs of $50k or less, and incurred startup expenses after Oct 22, 2004, you can deduct up to $5k in business startup costs on your 2016 tax return. If those startup costs exceed $50k, the $5k first-year deduction is reduced dollar-for-dollar by the amount your expenses exceeded $50k. Furthermore, if your start-up expenses exceed $55k or more, you won?t be able to claim the $5k deduction for the first year.
For example, if start-up costs are $51k, the deduction is reduced to $4k. If start-up costs are $55k or more, the $5k deduction is completely phased out; in tis case you need to claim $333; $5k/180 months*12 per year. You may be able to deduct startup expenses, such as market research, over a period of time through a process known as capitalization, even if the business never earns income or never opens. If your business fails to earn any income after you open, some expenses may be deductible in future years as a net operating loss. These practices apply even if your business is a sole proprietorship. , like most small business owners, you?re a sole proprietor, you may deduct any loss your business incurs from your other income for the year ,for example, income from a job, investment income, or your spouse?s income if you file a joint return.If your losses exceed your income from all sources for the year, you have a ?net operating loss.While it?s not pleasant to lose money, an NOL can provide important tax benefits: It may be used to reduce your tax liability for both past and future years.Figuring the amount of an NOL is not as simple as deducting your losses from your annual income. First, you must determine your annual losses from your business .If you?re a sole proprietor who files IRS Sch C, the expenses listed on the form will exceed your reported business income. Your business loss is added to all your other deductions and then subtracted from all your income for the year. The result is your adjusted gross income. You may apply an NOL to past tax years by filing an application for refund or amended return for those years. 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 for the next 20 years and you want to use your NOL in the future when you?ll be subject to a higher tax rate.
2. The overall income from the business will be negative. Therefore, will I be get the tax refund when filing jointly?====>No unless you p aid quarterly estimated atxes for the business during the tax year of 2016; If not then no refund and since your biz losses exceed your biz income as said above you need to apply NOL for your business .please read above thoroughly.