Though there have been a few indications as of late that our economic situation is starting to lighten up (a bit), the truth is that for many small businesses, 2010 has been a hard year. When “hard” spells not profitable, knowing how to handle your taxes properly is essential. Many small business owners may not be aware that declaring a net loss has important tax consequences. Any business that declares a loss in more than two out of the past five years can be re-classified by the IRS as a hobby, and “hobbies,” unlike businesses are not eligible for tax breaks.
If you are just waking up to this fact, then there may still be some things you can do even within the last week of the year, depending on the extent of your loss:
- See if you can capitalize on some holiday cheer by speaking with vendors and other creditors about deferring some of your business’ debts.
- Meanwhile, you could try some last minute efforts to collect on any outstanding debts to your business- even partial payments may help ease the situation.
- Try to unload any unused or unneeded inventory by selling it on eBay or Craigslist
- Make sure to mail any checks for deductible purchases, business expenses and write-offs so that they are postmarked by midnight on Dec. 31.
- Talk to an accountant or CPA to ensure that you are either writing off equipment purchases or depreciating them in the way most beneficial to your particular situation.