Question by jennifer r: what happens if you have a loss on your small business taxes more then 3 years?
I have a small internet store and this will be the fourth year I had to claim a loss on my taxes “due to the economy.” I’ve heard you can only claim a loss for 3 years, is that true?
Best answer:
Answer by SmartA$ $
There’s no limit to the number of years you can claim a business loss on your taxes. However as a general rule of thumb, if your business isn’t showing a net profit after 3 years, they will become very suspicious and you become a prime suspect for an in depth audit. If you have good records and can justify every little expense, then you will make it through the audit without too many changes.
What do you think? Answer below!
The IRS has a theory–at some point you cut your loses.
If you can’t show a reasonable expectation that you will become profitable soon, then the IRS can argue this is a hobby and limit your losses to your income.