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Does a new business without profits still need to file?
Q: I launched my corporation this year. We don't have any revenues and my wife and I (the only employees of the corporation) do not take a paycheck. Should I be doing any employment–related filings with the IRS? The state?
A: You must have an employer tax identification number (obtained by filing Form SS–4, Application for Employer Identification Number) and generally you must file quarterly employment tax returns (Form 941, Employer's Quarterly Federal Tax Return) with the IRS, even if you don't take a salary. See IRS Publication 15, Circular E, Employer's Tax Guide, which explains your responsibilities, at www.irs.gov. You may also have state filing obligations, including quarterly unemployment tax forms (contact your state tax department for information).
Related note: Another small business owner has asked how many years a business can take a loss before it ceases to be considered a business by the IRS. Here's my response:
There is no fixed limit in the law on the number of loss years you can report. However, you can only deduct losses if you are in the business to make a profit. Continued losses may raise eyebrows at the IRS and arouse suspicions that the activity is merely a hobby and not a business. Then you'll have to prove a profit motive, based on various factors, such as running the activity in a business–like fashion, putting in substantial time and effort, and trying ways to improve profitability. For more information on the hobby loss rules, see the information on "Not–for–profit activities" in Chapter 1 of IRS Publication 535, Business Expenses, at www.irs.gov.
There is no fixed limit in the law on the number of loss years you can report. However, you can only deduct losses if you are in the business to make a profit. Continued losses may raise eyebrows at the IRS and arouse suspicions that the activity is merely a hobby and not a business. Then you'll have to prove a profit motive, based on various factors, such as running the activity in a business–like fashion, putting in substantial time and effort, and trying ways to improve profitability. For more information on the hobby loss rules, see the information on "Not–for–profit activities" in Chapter 1 of IRS Publication 535, Business Expenses, at www.irs.gov.
Some issues discussed in the expert forum are complex and continually changing.We recommend you consult a professional advisor about your specific circumstances, needs, and applicable laws. More details.