04 May Deductions when you shut down a business
Q. I’ve been running a side business editing resumes and cover letters for job seekers. I’ve decided the money I’ve made isn’t worth my time, and the business has mostly broken even. If I close down for good, are there any things I can do with my taxes, like take losses for the business, so I can make out okay?
A. There’s not much you can take, our pros say.
If you have expenses related to the business, make sure you take them in your final year of the business.
“If they exceed any income you’ve received in that year you could take a net loss for the business, which would offset your other ordinary income,” said Clare Wherley, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.
She said if you had any home office expenses in a prior year that were not allowed due to the income limitation, you can claim them fully in the final year to offset any net income from the activity you have. You cannot deduct them in excess of income, she said.
Now, we’re assuming your business has broken even, as you stated, and that you’ve been deducting your business expenses against your business revenue each year on your tax return.
If that’s the case, the only additional tax deductions available to you upon dissolution of the business would be for the balance of equipment or intangible expenses which were capitalized originally on your return and depreciated or amortized over several years rather than deducted in full when incurred, said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield.
“Examples would be office equipment or furniture which was being depreciated and/or organizational costs for starting your business which you were amortizing,” Gallo said. “Any part of these costs which had not yet been depreciated or amortized will be fully deductible in the year the business is dissolved.”
He also said any costs directly attributed to the dissolution of the business, such as filing fees or legal fees, are fully deductible in the year of dissolution.
Also make sure to fully shut down the business with your state taxing agency including any sales or payroll tax obligations, Wherley said.
Email your questions to moc.p1582296722leHye1582296722noMJN1582296722@ksA1582296722.
This story was first posted in May 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.