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Old 05-08-2017, 05:55 AM
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Tax Consequences When Closing Business

I am 74 and have had a photography business (formerly weddings, now just portraits) for 22 years. I recently got into astrophotography, hoping to shift into marketing images of galaxies, nebulae, etc. as an extension of my business. I invested about $10,000 in astrophotography gear and have taken a business deduction for it for the past two years.

I am now reevaluating my goals and thinking it's probably time to close down altogether since I am not actively marketing for any aspect of the business and am just ready to retire. Would there be tax consequences regarding those deductions?

Thanks for any help.



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Old 05-08-2017, 11:18 AM
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Originally Posted by geoffoto View Post
I Would there be tax consequences regarding those deductions?
It depends; I assume that your business entity is a sole proprietorship, then, as you can see, you can deduct the costs of operating your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.To be deductible, your business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.so if you 've been running an unincorporated business by yourself with no employees, reporting your shutdown to the IRS couldn't be easier. Say you?ve been a self-employed photographer for the last several years, filing Sch C each year to report income and expenses.
You work by yourself out of your home and don?t own any business assets. If you closed your business just by stopping operations, there is nothing else to do for your income tax return. However, if you sold the business to someone else, you need to include the transaction on your income tax return.One more, If, 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 business is operated as an LLC, S corporation, or partnership, your share of the business?s losses are passed through the business to your individual return and deducted from your other personal income in the same way as a sole proprietor



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Old 05-08-2017, 02:42 PM
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Thank you for that thorough explanation. I do have a sole proprietorship. I guess what I'm wondering is this: During the two years I took a depreciation deduction for the astrophotography gear expecting to use it to extend my business, I benefited to the tune of probably a couple thousand dollars in deductions. The IRS allows losses for a while as long as the equipment generates a profit after 3-5 years (?). Now that I am considering closing shop altogether after just two years, would I owe the IRS any of that money back?



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Old 11-17-2017, 10:15 AM
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Monily

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Old 11-24-2017, 09:43 AM
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Originally Posted by geoffoto View Post
Thank you for that thorough explanation. I do have a sole proprietorship. I guess what I'm wondering is this: During the two years I took a depreciation deduction for the astrophotography gear expecting to use it to extend my business, I benefited to the tune of probably a couple thousand dollars in deductions. The IRS allows losses for a while as long as the equipment generates a profit after 3-5 years (?). Now that I am considering closing shop altogether after just two years, would I owe the IRS any of that money back?
in youir case, No unless your capital gain exceeds you r capital losses on disposition of business assets; A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable and is taxed at 25% aslongas your marginal tax rate is higher than 15%.so unless you have gain , you are not liable for sec 1245 deprecation recap tax. Depreciable personal property (Section 1245 property) includes items such as machinery, equipment, furniture, and other items subject to an allowance for depreciation.In the case of a sole proprietorship, a sole proprietorship is a form of unincorporated business that acts as an alter ego of the owner and reports its related business income or losses on the owner's individual income tax return. A sole proprietorship can depreciate business assets, i.e., vehicles, equipment, computers, furniture and real property, purchased for the business purposes. Sole proprietors, like other business owners, often have a choice regarding how to depreciate an asset. For instance, say, the irs allows an immediate Section 179 depreciation deduction for the cost of new or used equipment up to a certain dollar amount. Also, there is a 50 % first-year bonus depreciation tax deduction for qualifying purchases that can be carried forward to offset future taxable income.Since depreciation is a paper loss as opposed to a cash outlay, the choices a sole proprietor taxpayer makes regarding depreciation methods and the depreciation calculation can drastically impact the amount of net taxable income and total taxes due. In particular, the 50%first-year bonus depreciation tax deduction can result in a net operating loss that can be applied to other sources of income, resulting in a lower overall tax burden for the sole proprietor taxpayer.however aslongas as you have $0 income and expenses so net operating losses thorn no sec 179 recap taxes on your return. In general, Section 179 recapture occurs when you are required to add back to income the section 179 deduction you took in an earlier year.You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV ofForm 4797.however as you take losses no need to pay back sec 179 dedcuition recap taxes



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