garysport[at]aol.comjknnot (GarySport) wrote:

- quote -

At the very least, what you should do is include an
attachment sheet explaining the terms of why you didn't make
any money last year in the side business. This will go a
long way for you in explaining ahead of time why there is a
gap in your Schedule C filing, because there are less than
honest scenarios that could explain your situation. Explain
your innocence beforehand, to reduce the chances of a grumpy
agent who presumes guilt before innocence.

Next, go to a tax pro and have him/her determime if amending
your 2002 return would be of benefit, because the
depreciation shouldn't go to waste (that is, just because
you decided to skip a year and NOT take the depreciation
credit does not change that that year's depreciation still
counts; but there are some situations where that doesn't
matter so much, so pay for a pro to analyze your business
situation).

Third, the new business checkbox offers a convenient means
for an auditor to determine whether certain deductions of a
newly formed business should instead be treated as Sec195
startup costs; that is, instead of deducting the full
amount, expenses considered as startup costs are spread over
a 5 year period. Yep, you gotta check the box, you oughta
include an attachment explaining yourself, and you will
undoubtedly benefit from visiting a tax pro who can evaluate
your situation more fully.

Shannon Gass, EA

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I have a question about Schedule C, Line H "If you started
or acquired this business in 2003, check here." The
instructions say "Check this box if you acquired or opened
this business in 2003. Also check the box if you are
reopening or restarting this business after temporarily
closing it, and you did not file a 2002 Schedule C." If a
service business is resumed after a sabbatical year, is that
called a "reopening"? I didn't liquidate any assets, and
there is no product or inventory. And what exactly is the
purpose of this question and what are the ramifications of
checking "yes" or "no." If I check "yes" the IRS will think
it's a new business. But that will look funny when I list
the depreciation for "assets placed in service prior to
2003" since a new business wouldn't have "prior assets." So
that part makes me think I'd be better off by checking "no"
that it is not a new or reopened business. But if I check
"no" the IRS will wonder why there was not a 2003 Schedule C
So there is a "Catch 22" with either answer, and there
are pluses and minuses for going either route. I'd
appreciate any comments/suggestions. Thanks.

GS

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