What is a business loss?

Question

Hi. Let's say I just started my business, I made $10,000 in sales for the year, but it cost me $15,000 in operating expenses (buying inventory, buying equipment, vendor monthly service fees, utility bills, attending business seminars, gas mileage for client meetings, etc).

Do the operating expenses count toward the business loss? Or do losses only relate to sales/profits?

Answer 1

You'll need to talk to a CPA for a specific answers regarding things like mileage, but for the most part anything that you pay for your business goes towards the loss.  By definition Profit=Income-Expenses.  So anything that you spend for the business goes towards the loss.  

Answer 2

All expenses can be written off against total sales.

However if you bought equipment that can depreciated, which means that you can write off some of it this year, some next year and the year after that until it is fully depreciated

For the sake of discussion let say 9,000 of the 15,000 were expenses and 6,000 was for equipment, you could possible use only 1,000 of of the 6,000 to wipe out the 10,000 in sales and keep the other 5,000 for future years.

Answer 3

So far as I know, most overhead cannot be written off.  

Answer 4

Basically, you have two general categories of expenses, Cost of Good Sold and General and Administrative.  Both categories are used in determining your net income.

As far as the answer that talked about depreciation, there are special IRS rules that allow you to take essentially all of your depreciation the first year of service life.

And not all equipment needs to be depreciated.  You can basically say that for your business any equipment below 1000 dollars cost will be expensed, and as long as you are consistent, this will be fine.

Depending on the size of your business and your experience, either get a tax professional to help you or buy the small business version of Turbo Tax, which will walk you through all aspects of tax preparation.