It's not a business unless you treat it as a business.

Hi June,

I was at the Creative Freelancer Conference in San Diego last Summer where I attended one of your classes.

I have been buying software and hardware and traveling to workshops and designing for people that never paid. I don't have a "real" business or had advertised, but had word of mouth situations.

I'm obviously new to business and unfortunately I would do the work and then clients decide to bail on me.

The only income I have is unemployment.

All my expenses toward my "business" - could I use them in my taxes? I have a desk in my bedroom of my parents house since I lost my "real" job in 2008. I spent LOTS of money on my "business" but obviously no income. Is this even possible to turn in as an expense?

And what do you charge for this?
Christina


Dear Christina,

The IRS regs allow for business losses to be deducted from other income. But, the operative word here is "business." You must be a business.

In my book Self-employed Tax Solutions I pose the the question: How do I prove I am a business and in it to make money if I make no money? The answer: You must treat your endeavor like a business. I give a list of ways that you can show that you are treating what you do as a business.

You did not treat what you did as a business and so you cannot deduct the loss from your other income.

Here's my post that will give you more info HOBBY OR BUSINESS: Are you a professional artist?

There is no charge for answers posted on my blog.

-- June