Wife tried Mary Kay in 08, filing questions..

crazycd1 · #1 (**permalink**) 01-31-2009, 09:14 PM

Well the wife tried out Mary Kay sales in 2008 and now I am trying to do a Schedule C for the first time. After its all said and done of course we will be at a loss. Is it mandatory to file the C for this type of sales even though it was a loss? She will not be selling it anymore, and only did a few months last year.

She also bought some of the inventory in Dec 07, but I did not add that on 07's return, can I add that on 08's return or do I need to file an amended 07 to correctly do 08?

TaxGuru · #2 (**permalink**) 02-01-2009, 03:08 PM

It is best to file a Schedule C if your wife really intended to operate this as a business with a serious intention of generating a profit. Usually, most small businesses have a difficult time generating a profit in the first year of operations. Thus, it would not be unusual for your business to have a loss in the first year of business.

With respect to the 2007 inventory, I suggest is that you do not worry about any inventory in 2007 and not file an amended tax return for 2007. It won't make a significant difference in the 2007 tax return.

Well, it seems your wife has no intention of continuing this business into the next year! Well, the IRS may disallow all the losses generated in the 2008 year.

I suggest that you show some ending inventory in the 2008 tax return that would be reflected as opening inventory in the 2009 tax return. Then please ask your wife to actively pursue the business in 2009 and attempt to least sell off all the remaining inventory completely in 2009. This will create an impression that your wife was seriously pursuing the business in 2009.

This will generate a small amount of revenue and ensure at least 2 years of business, thus perhaps ensuring that the IRS may not disallow the loss from the 2008.

I am afraid that filing a 1 year schedule C as a Mary Kay agent may result in the IRS recharacterizing the business as a Hobby, and thus may result in disallowance of the losses claimed on your schedule C in 2007.

crazycd1 · #3 (**permalink**) 02-01-2009, 03:24 PM

Well she got pregnant and still has a full time job, the mary kay thing is over, she won't be trying to continue. The economy doesn't help, who has money for expensive makeup..

SO, what option do I have since this will be a one year only deal? Thats why I thought about not even filing the sched c, but I don't want to get in trouble for not doing it. It seems we might even for filing it..... So what happens if WE decide it was a hobby and don't care about the loss?

TaxGuru · #4 (**permalink**) 02-01-2009, 03:27 PM

Well, go ahead and file the tax return with the Schedule C and take the loss, it seems you have a legitimate reason for quitting the business.

But, do you have any inventory left over from 2008?

crazycd1 · #5 (**permalink**) 02-01-2009, 03:30 PM

There is some, but for all I care we can give it away, she stopped actively selling in June. Can I take what she spent in Dec of 07 and add that to what she bought in 08 and use that as the total spent on inventory?

TaxGuru · #6 (**permalink**) 02-01-2009, 03:55 PM

Yes, it should not be a problem! Good luck w/ the baby..!

crazycd1 · #7 (**permalink**) 02-01-2009, 04:01 PM

Thank you and thanks for all the help!

I guess the last thing is do you think that 09 will be a problem not sending a sched c to the point of an audit?

TaxGuru · #8 (**permalink**) 02-01-2009, 04:12 PM

A modicum of losses will not trigger an IRS audit, and in your circumstances, I suspect that the IRS would accept the fac that your wive has a reasonable cause not to continue in the business for 2009. Also, I do not think that you would show an unreasonable loss for tax year 2008.