Call Now (800) 681-1295
Close

Can I Write Off My Online Business Losses?

Table of Contents

    Some people view starting an inline business as a win-win proposition. That is, if the business is successful, they win because the business will bring in potentially significant amounts of income. If the business is not successful, they may reason that they “win” regardless since they  assume that will be able to “write off” their business expenses. While one can already poke holes in this view due to the fact that you can only take business deductions when you have already lost money, taking deductions due to assumed business losses isn’t always as straightforward and a matter of course.

    IRS May Disallow Business Deductions if it Believes Your Business Is Not Run For Profit

    The IRS is known to disallow business expense deductions when the agency believes that your business is actually a hobby. If you started a new business in a field that is traditionally viewed as a hobby or pastime and have lost money in all or most years, the IRS may take a second look at whether your activities qualify as a business. However, the taxpayer needs to be especially wary because the IRS’s definition of a business probably does not comport with your definition of a business. Taxpayers should review the hobby-loss rule and its nine-factor test to better understand the tax treatment they can expect.

    IRS May Also Disallow Larger than Average Business Deductions

    The IRS is privy to data from businesses of all sizes and industries. The IRS aggregates and analyzes this data to better understand individual and business taxpayers. One use of this data is to detect possible fraud in the form of inflated or fabricated business expenses. If your business claims significantly greater expenses than average for its size and industry, an audit may follow.

    Certain Large Business Deductions May Be Used by the IRS to Expose an Online Business

    IRS examination techniques manuals specifically contemplate the fact that certain large deductions can reveal the existence of an online business or an online component to an already existing company. The manual notes that claimed asset depreciation schedules and expenses can reveal online activities. It further states, “An unusually large amount deducted for Rental/Leasing Expense and/or Utilities may also be indicators that the company is involved in Internet activity.”

    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    tax lawyers

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    California
    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    Arizona
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    Texas
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    Nevada
    (702) 997-6465
    Florida
    (786) 999-8406
    Utah
    (385) 501-5934