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Yes, the business loss can offset personal income. No, I do not know the details.

My wife launched a small business in 2012 and like you we sunk a good chunk of money into it - around $40k. The business lost money that year, and she abandoned it when she was offered a very lucrative position with a previous employer. We had an accountant handle our personal and business taxes for 2013, and the business losses offset some of our personal income.

But now it swings the other way. The business had essentially no expenses in 2013, but some payments were received for work done prior in 2012. So it will post a small profit for 2013.
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