Schedule C - NOL Carry-forward for Start-Up?

No, you can't choose to just not claim a schedule C loss.

But there are decisions you can make to reduce that loss.

For example, put off expenses. Don't buy supplies ou can do without.

However now is a new year and 2009 is last year and there are still tax decisions you can make to reduce the loss.

For example, while some taxpayers will want to claim full first year expense for capital property they purchased, you can refuse to take any first year expensing (Section 179) and depreciate the property instead.

And when you do depreciate, you can choose not to claim any bonus depreciation under Section 168(k). This is actually an election you have to make, as the default it to claim bonus depreciation.

And when you forgo Sectons 168 and 179, you can still elect to not use accelerated depeciaion, and use straight line instead.

If you planned to claim home office expenses, which is an area of your home used regularly and exclusively for your business, and happen to remember you occassionally used it for personal use this year, and so will not be able to claim home office expenses. And if you claim mileage, you will probably have fewer deductible miles when there is no office in the home.

I can't possibly list all posibilities, but you get the idea. If you are new at this, see a local tax professional who is experienced at filing depreciation schedules.

One more idea to discuss with the CPA: since you had zero income it's likely that the business hasn't "started up" for tax purposes. The startup date fort a brick & mortar store is the day you open the doors to your first paying customers. For a business like yours, it doesn't sound like you have your first customer yet. So, what you do is to report all the expenses during 2009, and then have an offset on page 2 of Schedule C, something like "Less capitalized startup costs." Startup costs don't include equipment depreciation and certain other "unusual" expenses. You continue to do this each year until that official startup date occurs. Beginning on that date, you get to deduct the first $5,000 of startup costs (unless you've spent over $50,000) and amortize the rest over 180 months. You can include home office, auto mileage, just about any business expense in the startup figures.

I had a client a few years ago that spent several hundred thousand on startup costs over about 3 years, had their first few sales, and then realized that the business model wasn't going to work. Suddenly a huge tax loss, and eventual bankruptcy. But, they now have a successful new business - one of the advantages that bankruptcy affords entrepreneurs, by giving them a fresh start.

Good luck with your new venture.

"It is not worth it to me to be audited by the IRS for claiming business loss deductions or having the IRS disregard my business as a hobby if I am not able to show consistent profits in 3-5 years."

That is not how the 3-5 year rule works. See Form 5213 and related instructions. If this form is filed and you show profits in 3 out of

5 years, there is a rebutable presumption that you have an activity that is engaged for profit. The IRS would have the burden to prove that you have a hobby. You can have losses for 10 consecutive years and still, based on factual circumstances, be considered a profit- engaged activity.

Richard Di Bernardo, CPA San Francisco