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Old 09-02-2011, 01:57 AM
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Sole Prop with no income, only expenses in 2010

My husband received his contractors license in June 2010 and started a Sole Proprietorship with limit start up from us. In 2010, we spent approximately $6000 on expenses (i.e. general liability ins., advertising, tools & equipment, etc... ) but earned no income until 2011. Are we required file the net loss of $6000 in 2010 or are we able defer the expenses from 2010 to 2011 when first earned income / began officially operating?

Thanks!



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Old 09-02-2011, 03:53 AM
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“Are we required file the net loss of $6000 in 2010 or are we able defer the expenses from 2010 to 2011 when first earned income / began officially operating?”-->In general, as you can see,a person with SE income MUST file a tax return when NER EARNINGS, NOT Gross earnings, from SE are $40-0 or more. I mean net earnings from SE is 92.35% of the profits reported on Sch C line 31. Generally, NOLs come up when you have more tax deductions than taxable income; you may have an NOL if you have a negative number on the line for taxable income before you deduct your personal exemptions (line 41 on Form 1040).NOLs are designed to help you offset income you had in past years or may have in the future. The idea is to give you the full "benefit" of your loss by letting you reduce your taxable income and lower your tax bill in years where you didn't suffer a loss.Generally, when you have a NOL at the end of the year, NOL year,2010, in your case, then you have to carryback the whole NOL to the two tax years , 2008 and 2009,before the NOL year. Then, if there's any leftover NOL after the carry back period, you carryforward the balance for up to 20 years after the NOL year( after 2010 , I mean). However, remember: You can't deduct any part of the NOL after the carry forward period. You can waive the two-year carryback period and use the NOL for the carry forward period only, 2011 in your caase. This may be advantageous if your taxable income in the past two years was low or if you expect to have a lot of taxable income after the NOL year. So you need to file your return for 2010.To deduct your NOL, you need to file Form 1045 including Schedule A. The advantage of using Form 1045 is that you will get your refund quicker than if you file amended return Forms 1040X for those years
Please visit the IRS Web site here; Instructions for Form 1045 (2010)



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