Can I decuct business expenses from 2005 in my 2006 tax return

  • Thread starter Friendly person
  • Start date

F

Friendly person

Some of you gave me solid advice on another tax question in another
thread but I have another question.

I started my little business in November 2005. I was in the red last
year as my expenses were a lot higher than my income.

I purchased in 2005 office stuff to get my business rolling. Can I
deduct these business expenses from 2005 in my 2006 taxes or is that
too late?

Please advice.

Kindly,
Ette
 
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Paul Thomas

Friendly person said:
Some of you gave me solid advice on another tax question in another
thread but I have another question.

I started my little business in November 2005. I was in the red last
year as my expenses were a lot higher than my income.

I purchased in 2005 office stuff to get my business rolling. Can I
deduct these business expenses from 2005 in my 2006 taxes or is that
too late?



Equipment purchased is depreciated (expensed) over a number of years (3, 5,
7 generally). Other expenses that you incur ~~~before~~~ starting, called
"start-up" expenses (catchy eh?) get amortized (expensed) over time if you
elect to do so on the initial return. Other expenses should have been taken
in the year incurred. Of course, inventory (items purchased to sell)
doesn't get expensed till you sell it.

Gather up your stuff and talk to a local CPA or EA that deals in start-up
businesses.
 
F

Friendly person

Hi Paul, thanks for answering me.
Equipment purchased is depreciated (expensed) over a number of years (3, 5,
7 generally). Other expenses that you incur ~~~before~~~ starting, called
"start-up" expenses (catchy eh?) get amortized (expensed) over time if you
elect to do so on the initial return.
Yes, very catchy, reminds me to a NASA launch.
Other expenses should have been taken
in the year incurred. Of course, inventory (items purchased to sell)
doesn't get expensed till you sell it.

Gather up your stuff and talk to a local CPA or EA that deals in start-up
businesses.
Okay, let me summarize, if I understood this right.

A computer, for example, can be depreciated over several years.

But what about this:

Before I started my home business, I had no phone and no Internet
access at home. I ordered those in Nov. 2005 to open a business. Can I
depreciate something here or is that water under the bridge?

I use one room of my rented home as business place. I work there since
Nov. 2005. Can I deduct two months rent for that room in 2006 or is
that too late?

And how about little stuff, like calender, papers, computer mouse,
light bulbs, internet fees, electricity, the phone as such.

I really want to make it right. I don't want to cheat the IRS but I
also don't want to pay more than I have to as I actually can't afford
it.



Kindly,

Ette
 
P

Paul Thomas, CPA

Friendly person said:
Okay, let me summarize, if I understood this right.

A computer, for example, can be depreciated over several years.

Computers and related equipment, over 5 years.


But what about this:

Before I started my home business, I had no phone and no Internet
access at home. I ordered those in Nov. 2005 to open a business. Can I
depreciate something here or is that water under the bridge?


Whene did you start your business? As in - when were you first able to sell
your goods or services to the public. That's your start date. Certain
expenses befor that date would be start-up and capitalized and if elected,
amortized over time.



I use one room of my rented home as business place. I work there since
Nov. 2005. Can I deduct two months rent for that room in 2006 or is
that too late?
And how about little stuff, like calender, papers, computer mouse,
light bulbs, internet fees, electricity, the phone as such.

If they fall into start-up expenses, you can take them over time - if you
elected to do so on your 2005 return.



I really want to make it right. I don't want to cheat the IRS but I
also don't want to pay more than I have to as I actually can't afford
it.


A cash basis taxpayer can only claim their operating expenses in the year
incurred, depreciation of assets, amortization, and inventory not
withstanding.

If it was a 2005 expense (and not equipment, inventory or an amortizable
expense) it can only be claimed in 2005. If you're talking about a lot of
money (and it sounds like it), file an amended 2005 return to claim all your
expenses.

Again, seek the help of a competent tax preparer in your area (a CPA or EA
will do fine).
 
F

Friendly person

Hi Paul,

Computers and related equipment, over 5 years.
Do I have to stretch the depreciation for a computer over 5 yeas or can
I deduct it in one tax payer year?
Whene did you start your business? As in - when were you first able to sell
your goods or services to the public. That's your start date. Certain
expenses befor that date would be start-up and capitalized and if elected,
amortized over time.

I started my Nov. in 2005 and sold my services but made just about 400
bucks income.
I spend approx. 1000 bucks to set my business up in 2005.
If they fall into start-up expenses, you can take them over time - if you
elected to do so on your 2005 return.
I informed the IRS in my 2005 tax returns that I opened a business in
Nov. 2005 but made just about 400 bucks income. This is why I wonder if
I can deduct some of my 1000 bucks expenditures of Nov/Dec. 2005 as
start up expenses on my 2006 return.
A cash basis taxpayer can only claim their operating expenses in the year
incurred, depreciation of assets, amortization, and inventory not
withstanding.
I am a cash basis taxpayer.
If it was a 2005 expense (and not equipment, inventory or an amortizable
expense) it can only be claimed in 2005. If you're talking about a lot of
money (and it sounds like it), file an amended 2005 return to claim all your
expenses.
No, it is not a lot of money, Paul. I wish. ;) I it just about 1000
bucks.
Again, seek the help of a competent tax preparer in your area (a CPA or EA
will do fine).
Hm. I try to understand this tax stuff myself.


Kindly,

Ette
 
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Paul Thomas, CPA

Friendly person said:
Do I have to stretch the depreciation for a computer over 5 yeas or can
I deduct it in one tax payer year?


You might qualify for Section 179, which is expensing the purchase in full.
There is an income limit, so if you are showing losses, chances are slim.
Talk to a local tax professional, because they can assess your facts and
circumstances to determine if you can still take Section 179 against other
income, and, if it's worth doing that, or taking regular depreciation over
the years.


It boild down to a potential tax savings now, or a tax savings later.



I started my Nov. in 2005 and sold my services but made just about 400
bucks income.

Then expenses incured After your start date are deducted on a 2005 return,
period.


I informed the IRS in my 2005 tax returns that I opened a business in
Nov. 2005 but made just about 400 bucks income. This is why I wonder if
I can deduct some of my 1000 bucks expenditures of Nov/Dec. 2005 as
start up expenses on my 2006 return.


Nope, those should have been taken on your 2005 return.




Hm. I try to understand this tax stuff myself.


Understanding it, to a degree that it helps you make good decisions, is a
noble goal. Understanding it to a degree that consumes your every waking
moment, well, you more than likely wasting your time that could be used to
generate more revenues from your clients.


Get a moderate grasp of the concepts, and leave the details to the
professionals.
 

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