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From: neal@denelcor.UUCP (Neal Weidenhofer)
Newsgroups: net.taxes
Subject: Re: Employee and A Business Owner
Message-ID: <329@denelcor.UUCP>
Date: Thu, 9-Feb-84 20:21:46 EST
Article-I.D.: denelcor.329
Posted: Thu Feb  9 20:21:46 1984
Date-Received: Sat, 11-Feb-84 07:17:26 EST
References: <150@ihopa.UUCP>
Organization: Denelcor, Aurora, CO
Lines: 48

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First my credentials:

	I am not an accountant or any kind of professional at accounting
or taxes or law.  I always do my own taxes; the last time I went to an
accountant, it didn't take me long to realize that I understood it better
than he did.  I've been audited twice and "won" them both: no change the
first time (I had to substantiate some items which I did), the second time
I had to redo my moving expenses and got about $200 additional refund
(with interest which I had to pay tax on the following year).

>I have a question regarding people who are both an employee and a business
>owner.  When filing for taxes, must the incomes be seperated or can they
>be combined?  The real question is, if the business just so happens to 
>lose money, can the losses be subtracted from the employee salary?

	You bet business losses can be subtracted from salary!  That's
what Schedules "C", "E", & "F" are all about.  I own some rental property
which has shown a loss for the last three years (more than I intended in
fact but that's another story)--so essentially, I pay taxes on salary
minus loss.  An interesting sidelight:  The loss comes off of "Total
Income" rather than "Adjusted Gross" which means that you can usually
deduct more for medical expenses because of the way the medical expense
deduction is figured.  Likewise, you can deduct somewhat less for sales
tax.

>Question 2:  What makes a small business legitimate?  Do you need a license?

	A small business is legitimate if it's a bona fide ATTEMPT to run
a business for profit.  You need whatever licenses that the various
governing bodies require for that particular business but the IRS has no
license requirements of its own.

>The reason I ask is what happens if a business loses money five years in
>a row.  Will the IRS question the legitimacy of the business?

	I believe the IRS has a "rule-of-thumb" that they will question
any business that shows a loss for more than two out of any successive
five years.  That doesn't mean that they will automatically disallow it
however, it just means that you will have to convince them (or a court)
that you're honestly trying to make a profit and not just indulging a
hobby (or otherwise not trying to show a profit).

			Regards,
				Neal Weidenhofer
				Denelcor, Inc.
				!denelcor!neal