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Old 08-31-2012, 01:49 PM
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Business startup and closure

Hi,

I was planning on opening a store and registered my business in Feb 11 with irs/federal and state. I got EIN and state ID etc. I also purchased a machine as a sample to use in the business. However, right before I signed a lease, someone else opened the same business across from my location. So I quit and looked at other nearby towns but couldn't find a good location. So I have decided not to purse this business. Now I spent $2600 + $700 shipping expense and mileage for my trips to find a location etc are my expenses.

I found someone that wants to buy the machine for $2k and I will lose $1300 (incl shipping) from this. Can you tell me what I need to do to close this business. Will I be able to deduct the loss/expenses when I file my personal taxes at the end of the year? This is a sole-prop llc.



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Old 08-31-2012, 09:46 PM
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“I found someone that wants to buy the machine for $2k and I will lose $1300 (incl shipping) from this. Can you tell me what I need to do to close this business. “----->Closing a sole proprietorship business is much less complicated than closing down a corporation, LLC/LLP or other more formal business entity. It is the only type of business entity that does not require a separate business income tax return. Yo can stop filing a Sch C of 1040 after the last year in business. There is no need to mark the Sch C as a final schedule. This is all that's required by the IRS for the personal income tax return.You should file any federal, state and local payroll tax returns if there are EEs other than you, the sole proprietor. These must be marked as final in the last year of filing. You need to notify any business insurance carrier that you are closing the business if you have liability, commercial auto or other business insurance. ALSO you need to contact all customers, vendors, creditors or others you do business with so you can settle all accounts to coincide with the last Sch C you intend to file. All sole proprietorships are calendar-year businesses. This means your business year ends each year on Dec 31. You can write a letter to the appropriate local, county or state agency if you have registered and operated your sole proprietorship under a fictitious name, and inform them that you have closed your business. This written record will help protect you against any liability problems if another company begins doing business under the same or a similar name in the future.Finally you should calculate and report the profit or loss of the sale of any inventory or business assets (IF YOU HAVE)on the personal income tax return in which you file your last Sch C. If you don't sell any of these items, no reporting is required.

“Will I be able to deduct the loss/expenses when I file my personal taxes at the end of the year? This is a sole-prop llc.”------> Generally, you can deduct all of your travel expenses if your trip was entirely business-related. If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Since shipping costs are considered a necessary business expense, they can be listed as a tax deduction. The IRS only labels shipping costs as reportable under Part III of Schedule C, Cost of Goods Sold, if they are an integral part of the manufacturing process. When you sell merchandise and must ship it to the customer, it is considered an expense. Since the asset is a business asset, you will need to use Form 4797. You neeed to report the ordinary loss , $1,300, on Form 4797 (part 2 as sec 1245 asset) and 1040 line 14. Ordinary losses are not subject to the $3,000 annual limit that is imposed on capital losses; they can be for any amount. Business owners who fail to make a profit for the year can declare an ordinary loss on their returns. Ordinary losses are netted against ordinary income, which is taxed at the taxpayer's highest marginal tax rate. Ordinary losses can therefore offer the taxpayer greater tax savings than long-term capital losses.



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