I plan to start a sole propietorship next year, about eBay business. I will use half of the apartment I rent to store the stuff. The total rent of my apartment is $1000 per month. So I plan to claim half of the rent $6000(=$500 X 12 months) as the business cost. I guess my first year gross profit maybe only $2000. So the net profit is -$4000. (=$2000-$6000)
In this case, can I claim all the $4000 loss on my Form 1040 Schedule C? (I have a full time job, my AGI is about $50000.) If not, how much loss can I claim?
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If the deduction is legitimate and you don't fall under the hobby-loss rules, you can deduct as much as you lose (subject to at-risk rules and some others).
The rent is not cheap in New York City area. $1000 per month is a reasonable low rent.
theman2 said:$6K rent for an eBay biz? ahahahahaha
If the deduction is legitimate and you don't fall under the hobby-loss rules, you can deduct as much as you lose (subject to at-risk rules and some others).
ussrfw said:I will use half of the apartment I rent to store the stuff. The total rent of my apartment is $1000 per month. So I plan to claim half of the rent $6000(=$500 X 12 months) as the business cost. I bet that if you really think about it, there is no way you'll be using half your space for only business activities. Assuming the apartment includes a kitchen, bathroom, livingroom, and bedroom, how are you planning to clearly segregate the business space from your personal living space (let alone ensure it is exactly half)?
Or are you just going to bank on not getting audited?
I always thought that you could only deduct as much as you made from the business and additional losses were just carried over to the next year, but then again I have never had a business that lost money for an entire year. If it looked like I was going to loose money I found something better to do with my time but that is just me.
OP it seems like you should be concerned about being labeled as a hobby and or getting audited on the actual usage of the space. My wife and I both work from home full time (2 home offices plus some storage for my wife's business) and we aren't able to write off half of our rent (Currently ~40%). If you read the IRS regulations they are pretty strict about how the business space is used and areas that are occasionally used for business like the living room, kitchen, bathrooms etc... aren't deductible because we also use them for other things.
You should read IRS Publication 587 http://www.irs.gov/pub/irs-pdf/p587.pdf
excerpt from pg 7:
If your gross income from the business use of your home is less than your total business expenses your deduction for certain expenses for the business use of your home is limited. Your deduction of otherwise nondeductible expenses such as insurance utilities and depreciation (with depreciation taken last), that are allocable (sic) to the business, is limited to the gross income from the business use of your home minus the sum of the following.
1. ... (not applicable in your situation) 2. The business expenses that relate to the business activity in the home ... but not to the use of the home itself.
Discuss this with your accountant (be sure s/he is familiar with eBay). There are some interesting ways to deduct your expenses. I don't remember offhand - I cut way back on eBay - but if you include your losses from paypay problems/chargebacks, idiot buyers, shipping losses, time on the phone trying to get an actual person from eBay/paypal to speak to you, and so on, you come up with a lot of things on the expense side.
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