Uh Oh – Your Business Lost Money! Do You Still Need to File & Pay Taxes?

It takes many folks several years to get their businesses up and running financially. In those early years, you might sometimes turn a profit while other times you don’t. This is common and normal, so don’t get discouraged if your business records a loss here or there. If this happens, however, you might wonder what your tax obligations are in this case.

Do you need to file a tax return if your business ends up in the red one year, for example? And what about paying taxes in this scenario – is that necessary? You certainly aren’t the first person to ask these questions, nor will you be the last, so let’s get to answering these inquiries!

Filing Taxes and Paying Them Aren’t the Same

Let’s tackle each of these instances separately because they obviously aren’t one and the same. So, to begin, do you even need to file a tax return for your business if one year your expenditures outweigh your earnings? The simple answer is it depends. If your business had expenditures (whether it was profitable or not) – you likely need to and should file a tax return for it every single year. Keep in mind, however, that this is affected by how your business is structured. For example, in the case of a partnership, filing a return would not be necessary if your business had no income or expenses. Filing would be necessary, on the other hand, for a C- or S-Corp in the same situation.

Now paying taxes if your business has a loss is a different situation altogether. There are a bunch of other variables that come into play and impact what you’ll need to do here. For example, with a loss you might not need to pay self-employment taxes or income taxes (since there’s no profit). However, in certain states (like the state of NY, for instance), you need to watch out for a mandatory minimum franchise tax. In other words, some states don’t care that there’s no profit, they still want to be paid something because you’re operating a business within their state lines.

A Final Word From Tuesday P Brooks Owner of AJOY

So the takeaway here is that when there are business expenses filing a tax return is either mandated or simply a good idea. In the case of sole proprietorships, this might even lead to tax credits and/or refunds. Additionally, you must be knowledgeable about the tax laws in your specific area because you may or may not have to actually pay taxes if your business records a loss. This is in large part dependent on the tax laws in your state. If your state doesn’t charge a minimum franchise tax just for operating a business, then you very well might end up in the clear and not have to pay any taxes that year. A good way to ensure that you’re following the proper tax laws is to work with a tax accountant who specializes in small businesses in your industry. So no worries if you’re still feeling unsure – read this article for more information about how to pick a great accountant, and before you know it, you’ll be on the road to success!