Couple tax questions

[Berzerker]

I have an investment in a start up business and took a loss for last year.

1) Can I write that loss off at my leisure on future returns, even against gains if or when the business sells for a profit?

2) I got a K-1 for the losses, does the business send these to the Feds and my state or do I have to send a copy with my returns?

I'm worried that if I send the K-1 with my return, they will assume I'm reporting the loss now and I'm not

[duke o' york]

1) You can't write it off at your leisure, but you can carry it forward against the next taxable profits, against which it has to be used in full as soon as possible. So if you've made a loss of $100 this year and make a profit of $120 next year then you should be taxed for $20 profit. If you make a $60 profit for the next two years then you have to use it 60,40 and can't go 50,50.

2) No idea I'm afraid - I don't know what the K-1 is. Isn't it a kind of missile?

[duke o' york]

Dp

[Rufus T. Firefly]

I have an investment in a start up business and took a loss for last year.

2) I got a K-1 for the losses, does the business send these to the Feds and my state or do I have to send a copy with my returns?

I'm worried that if I send the K-1 with my return, they will assume I'm reporting the loss now and I'm not

I've been dealing with K-1's for several years as part of a partnership; you do not have to send the K-1 in with your return.

[The Mad Monk]

2) No idea I'm afraid - I don't know what the K-1 is. Isn't it a kind of missile?

It's a short highway that runs through Buttermilk, Kansas before hitting the Okie border.

[Berzerker]

I've been dealing with K-1's for several years as part of a partnership; you do not have to send the K-1 in with your return.

But I will need it for filing when I do claim the losses? I heard I have 20 years to claim these losses but Duke says I gotta claim the losses much sooner. Anyway, thx Rufus & Duke... I was under the impression the business sent K1s to the Feds but I'm not sure if they sent them to my state. How do the various jurisdictions know I took a loss or do they even care since I'm not claiming the loss yet?

[Rufus T. Firefly]

Good questions, Berz; I don't know the answers, unfortunately. I do know DC tax forms ask you to include teh K1 only if it shows any withholding -- the same rule that governs including 1099s.

[Solomwi]

But I will need it for filing when I do claim the losses? I heard I have 20 years to claim these losses but Duke says I gotta claim the losses much sooner. Anyway, thx Rufus & Duke... I was under the impression the business sent K1s to the Feds but I'm not sure if they sent them to my state. How do the various jurisdictions know I took a loss or do they even care since I'm not claiming the loss yet?

I haven't brushed up on any of this since I took a few tax classes, so take the following with a grain of salt, but I think the deal is that you have to offset the losses against the first $X in profit that you have, as duke said, but any loss not yet offset after 20 years goes away. In other words, you only have 20 years to claim the losses, but don't get to choose when during that period you claim them.

As to the worry expressed in your OP, the government won't let you "go negative" with a net operating loss deduction (which I presume is what you're claiming, rather than factoring in the purchase price of the investment), so it will only be applied to offset all or some (depending on the nature of the investment, certain limits on what income it can offset will apply) of your income for a given year. Whatever is left over carries forward to the next year, up to 20 years. As a side note, an operating loss can also be carried back to the prior two years.

If, on the other hand, you're talking about the price of the investment, that will only come into play when you sell it, and can't be used to offset ordinary income in the meantime. When you sell it, you'll only be taxed on the difference between the sale proceeds and the adjusted basis (purchase price, increased or decreased to account for improvements made, casualty losses/recoveries, etc.). Effectively, this means what you paid for it becomes a "deduction in waiting" until you sell it and claim the deduction to offset the income from the sale.

Sorry if I'm covering obvious ground on some of this, but I have no idea how familiar you are with the tax code, so I'm trying to be as thorough as I can, not trying to insult your intelligence.

[Berzerker]

insult away

thx, I'll mull that over a bit. I was planning on paying my taxes as normal and "save" the losses as a deduction later when the business sells, but it looks like the losses will only be saved until the business makes a profit and then they are deducted.

[duke o' york]

The difficulty is whether your business is incorporated or not. If it is, then my solution is correct, but it's a lot more complicated if you're a sole trader and you'll be filing your personal tax return. Let me know if this is the case and I'll look up the situation then.

[Solomwi]

The difficulty is whether your business is incorporated or not. If it is, then my solution is correct, but it's a lot more complicated if you're a sole trader and you'll be filing your personal tax return. Let me know if this is the case and I'll look up the situation then.

If he got a K-1, it's a pass-through entity (partnership, LLC, S-corp, etc.), making this for personal tax return purposes. Same disclaimer about insulting the reader's intelligence goes for you, duke.

[Krill]

Tax...overrated. Never getting a good job (a.k.a the Che approach) works as well.

[Solomwi]

Tax...overrated. Never getting a good job for very long (a.k.a the Che approach) works as well.

Fixed. Seems like I remember that Che does quite all right when he has work. It's just getting work that lasts more than a few months that seems to be problematic.

[duke o' york]

If he got a K-1, it's a pass-through entity (partnership, LLC, S-corp, etc.), making this for personal tax return purposes. Same disclaimer about insulting the reader's intelligence goes for you, duke.

No, I'm a British accountant, and not a tax accountant at that, so the more I can learn about this mysterious K-1 the better.
Then I'll move on to K-2....

[Japher]

PSA: Taxes are due today. In the states that means they need to be post marked by 7pm, the post office will not be open until midnight due to budget constraints.