Can I piggy back off this thread?
This is the first time I have to worry about business taxes. I formed an LLC and the partner is my wife, which i understand still counts as a sole ownership LLC.
So I saved all the receipts for business related purchases, but the thing is I really didn't make any sales with which to report any income from the business. I did sell a few things but didn't really keep a record since it was before I fully formed a LLC.
Even after reading instructions I am still confused about how to claim business work costs. It seems I have to claim it against profits but at the same time a sole ownership LLC seems like it is filed as a whole with all your income instead of a separate deductions against the business income. I know that some people will spread the cost of business over many years, such as a large piece of equipment. The thing I am worried about is that if I claim these costs against a zero income year, am I going to get any deduction for the costs. I cannot seem to see if my purchases in 2015 can be deducted from my overall 2015 income from my normal job and home business. Deducting $500 of supply investment against a business income of $0 gets me nothing, as opposed to a $500 supply investment against $1000 of sales. But if it all goes back to include income from my employment as well then i still get the deduction.
I did buy turbo tax for the personal income and home business this yearend I am hoping it will figure it all out for me. But that is just the federal side, I still have no idea how the online state sales tax thing works yet as far as deductions go. I did log on and filed my semiannual tax statement but it was for a whopping $0.
I use Turbo Tax and I am quite happy with the results. I find it to be accurate and I get the same results as my paying $800-$1k for my taxes to be done by a CPA.
When you first start a business you have to have sales/income which you apply your deductions against. No sales means no value to your deductions. Even if your deductions are more than your sales and you show a loss, you have to have some sort of income from running the business to show to the IRS. Other wise you are correct you get no value from your deductions. It doesn't matter if you were an LLC at the time of your sales. Your sales just had to occur during the tax year. You don't have to claim deductions against "Profits" as you said. You have to claim them against sales/income. You can still have a loss but you need to have sales to have a loss. The IRS assumes if you are a business you are doing this to make a profit. So it is okay to show a loss against sales/income. The thing is you can only show a loss for 3 straight years or show a loss for 3 out of 5 years. Which means you also have to show a profit for 2 of those 5 years. Otherwise they consider what you are doing as a hobby and not a business. If I were you, if you had sales, any sales/income during the 2015 tax year I would claim them even if it is not $500. At least you will get some value for your deductions. And I mean to do this legally and not lie or cheat. Sorry but I felt like I had to throw that disclaimer in.
Keep your employment income separate from your business income and keep your personal expenses separate from your business expenses. TT will ask you if you started or are currently running a business and will ask you if you had income, expenses, etc. It is pretty intuitive. I know the line can blur between personal and business expenses. But if you ever get audited if you cannot show the difference then the IRS won't know the difference either. And you will lose the deductions. TT will not allow you to mix your personal income and expenses with your business income and expenses unless you don't keep them separate. All of your business income and expenses will be reported on a different tax form/worksheet from your 1040. Only the results of the profit/loss and maybe some depreciation will be reported on the 1040 and in a different section on your 1040 than your employment income. TT will automatically port all your information over to your Hawaii State return. TT will still have to ask you a few Hawaii specific questions but they are pretty easy to answer.
I like TT and I have used it since the 80's. Only occasionally have I used a CPA and it turned out it was because I didn't trust my own judgement. Turns out for me TT works well. What I found though is you have to take the questions it asks literally. And answer them in the same way. If you try and over think what it asks you will end up asking questions on a forum. Only once in all these year have I had to contact a TT tax lawyer in order to fill out my taxes. And as I found out it was no fault of the software. It was an open line on a CA tax return that CA never wrote an explanation as to what was supposed to be inputted on that line. Turns out the Tax Layer I contacted through TT was a CA Tax Lawyer and was familiar with the local tax code. But even then it took him 45 minutes and a conference with his colleagues to figure it out. Unfortunately I multiple state tax returns.
Nothing I said here constitutes anything more than suggestions and is not legal advice in any way. Everything I stated here is only my experiences with running my own business and doing my own taxes. Your situation could be different than mine. YMMV