My partner and I started a small business sewing pocketbooks for craft fairs
and local stores. We have been in business for 3 years and have always showed
a loss (our sales only amount to between 2000 to 3000 per year). It seems
ridiculous to file a partnership return and then claim the small loss on our
personal income tax. It is my understanding that this year we have to show a
profit. I believe we should start treating this as a hobby but can we do that
and still collect sales tax (required for craft shows) I would appreciate any
advice on this. Thank you.
kmurray | Community Moderator |
1/8/2013 - 4:14 pm
Hi there,
BizResearcher makes a good point about the IRS. You can always consider consulting one of your local resources for additional insight from a mentor. Good luck!
When a business continues to report a loss while deducting expenses, that
sends a red flag to the IRS that you may be operating a tax shelter to reduce
your personal taxes. That can then trigger an audit. You may want to consider
dissolving the partnership and each of you reporting your own income and
expenses as hobby businesses.
If you participate in shows only a few times a year, you can apply for a
temporary sales tax permit for each show. That is how hobby businesses
collect sales tax. You would need to cancel your current sales tax permit.
Carl_Grothaus | Window Shopper |
1/8/2013 - 5:01 am
The clause in the partnership deed would determine your liability towards
your partner. If the profit and loss sharing account is linked to any such
clause then you can review it, but generally there are no such cases as to
redeem for claim on his personal income tax.
kmurray | Community Moderator | 1/8/2013 - 4:14 pm
BizResearcher | Window Shopper | 1/8/2013 - 1:12 pm
sends a red flag to the IRS that you may be operating a tax shelter to reduce
your personal taxes. That can then trigger an audit. You may want to consider
dissolving the partnership and each of you reporting your own income and
expenses as hobby businesses.
If you participate in shows only a few times a year, you can apply for a
temporary sales tax permit for each show. That is how hobby businesses
collect sales tax. You would need to cancel your current sales tax permit.
Carl_Grothaus | Window Shopper | 1/8/2013 - 5:01 am
your partner. If the profit and loss sharing account is linked to any such
clause then you can review it, but generally there are no such cases as to
redeem for claim on his personal income tax.
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