I just started my internet business, if i don't make a net profit for 2006, do i still have to file taxes?

All of these answers are good. Some are a little off, so I'll chime in.

Sole-proprietor:

If you are not incorporated or forming a partnership...if you are running the business yourself, then you are a sole-proprietor. You definitely want to file taxes for the business! Why? You will have incurred some type of expenses no matter if you sold anything or not. You will have equipment that you either bought or converted from your "personal" life to your "business" life. This equipment can be depreciated over its useful life (a fancy way of saying you can offset a portion of it's cost/value against your profit). The whole time it is being depreciated, it is saving you taxes. You can also write off the portion of your home that you use exclusively and regularly for the business. You can also write off any other expenses you incur like internet connection fees, stamps, phone calls, etc. Even if you didn't sell anything, or sold a small amount, your losses will probably exceed your sales creating a net operating loss (NOL). This NOL will offset the other income (W-2, interest, etc.) on your tax return and increase your refund. It could even bring your income all the way down to zero causing you to get back all of your withholdings (if you had any) from your regular job (box 2 of W-2). If your losses exceed your other earnings, you will have a NOL carryover which will save you taxes in future years.

They are right, if your net profit from the business is more than $400, you will owe some self-employment / payroll tax (a fancy way of saying Social Security / Medicare tax).

Incorporated / partnership:

If you are incorporated or have formed a partnership, you file a special tax return for the corporation when it had any business activity (sales or expenses). This tax return will spin off a K-1 to each of the owners who will have to transfer stuff from it to their own individual tax returns. It sounds like you may not fall into this category, so I will not elaborate any further.

Regardless, if you want to do it right, I would seek professional tax advice for at least the first year or two until you see how it is done. If you think their services are worth it, stick with them. If you see exactly what they are doing and feel comfortable doing it yourself, then switch. But, most people don't do anything at all which is a real shame. They are missing out on much needed tax relief during those early, formidable, unprofitable years.

Hope this helps :)

Yes... you may find that after expenses you end up witn a negative income for this business, ans that will be helpful if you have any other income sources for the year in reducing your tax liability..

Yes. There is a corporate tax form (if you opted to be a corporation) that you will have to file. If you have taken any distribution from the company, it will be shown on your personal taxes. To help you with your situation, it is better to contact a CPA who will be able to look at your paperwork and give you a better guidance.

You should because you had to pay for services ....web pages and all....that's all a write off.

It's a good idea for the reasons the first guy said, but also because it establishes you as having a business - not "officially", but for purposes of claiming a trademark or name as well as for any proof of employment that anyone might ask from you.

Good luck with it!

Yes. You should report your gross income, expenses & net income. Even if you are under the filing requirement you will owe social security tax if your net profit is more than $400.

If you are not a corporation and use a Schedule C to report your business you are not required to file if you have less than $400 net profit from the business. If however you have other income the filing requirement is any amount in excess of the total of your standard deduction and your exemptions (for example $8,200 for a single person in 2005) or the $400 business profit.

yes there is still self employment tax that has to be paid.

Yes, you should file.

Although you are not required to file if your net gain is less than $400, you might have capital investment (like computer equipment, office furniture) that you could amortize. Contrary to popular belief, you can't write off expenses unless there is a profit. However, capital investment can be carried over and help reduce your gain and taxes for future years.

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