A question I get a lot this time of year is, “If I didn’t make any money do I even need to report it on my taxes??” And my answer is YES! Here’s why:
1. If you put money into starting a new business you can deduct the startup expenses. There can be a lot of costs to get a business off the ground. It is important to keep track of all of these expenses so they can offset income later.
2. Certain losses, such as those from rental properties, can offset other types of income. For example, if you have a rental condo that lost $5,000 and you have a job where you get $40,000 on a W-2, your income would net out to $35,000.
3. Sometimes businesses can generate what we call net operating losses. This is when the business’s deductions are bigger than it’s income. While it stinks to lose money in business, these losses can be applied to other years and offset income- or even generate tax refunds!
4. Investment losses – up to $3,000 in capital losses can offset other income (similar to the rental property example above). If you have more than $3,000 in capital losses you can carry them forward until they are used up.
The key to taking advantages of these money losing situations is to have good documentation, and the help of a knowledgeable CPA. Contact me for a free consultation!