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Author: JoserFool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Freelance start-up losses Date: 12/5/1998 8:28 PM
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I am going to start doing some Freelance (Sole Proprietership) work soon. I would like to know if my computer and office equipment that I buy this year (solely for business use) can be subtracted from my income as a Business loss this year. I will have very little income from my freelance work this year. Can I decuct all my expenses as income loss in this year (or can I only deduct against income I bring in from my freelance work)? Would that count as lowering my AGI for this year? My wife and I will be close to the 100,000 household income limit this year for converting regular IRA to Roth. If I could use my Freelance expenses as a business loss against our 1998 AGI it might mean the difference between being able to make the ROTH conversion or not. Thanks for any help\advice you can give.
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6788 of 121219
Subject: Re: Freelance start-up losses Date: 12/6/1998 10:20 AM
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[[I am going to start doing some Freelance (Sole Proprietership) work soon. ]]

Contrats!!!

[[I would like to know if
my computer and office equipment that I buy this year (solely for business use) can be subtracted
from my income as a Business loss this year. ]]

Check out my post on computer deductions in the Taxes FAQ (archives section) area for additional information on this issue. The short answer is yes...at least in the form of depreciation or section 179 expense deduction. But you'll want to read more about the details.

[[I will have very little income from my freelance work
this year. Can I decuct all my expenses as income loss in this year (or can I only deduct against
income I bring in from my freelance work)?]]

As long as your consulting work isn't considered "passive" because you haven't put in the required hours (generally more than 500 hours during the year are required), then your losses can generally exceed your income. If you think that you will be spending less than 500 hours, your activity could be considered "passive", and your losses could be limited to the income generated, with the excess losses carried over to future tax years. You can read more about passive losses in IRS Publications 909 and 925 at the IRS web site.

[[ Would that count as lowering my AGI for this year?]]

If your losses are allowed in total, and they exceed your income, the result would certainly lower your AGI.

[[ My wife and I will be close to the 100,000 household income limit this year for converting regular
IRA to Roth. If I could use my Freelance expenses as a business loss against our 1998 AGI it
might mean the difference between being able to make the ROTH conversion or not.]]

That's true...but you STILL have to get over the passive loss rule "hump". The days of entering into a "business", spending very little time with the business, and deducting massive losses are long gone. The passive loss rules made sure of that.

[[ Thanks for
any help\advice you can give.]]

I hope that this DOES help.

TMF Taxes
Roy

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Author: jessholl One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6998 of 121219
Subject: Re: Freelance start-up losses Date: 12/10/1998 3:09 PM
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One other brief point that you may want to consider. You need to make a profit three of five years or the IRS will rule the business a hobby and you'll have to fight it in an audit.

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