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Can I file money spent on investments as expenses?

Discussion in 'Business & Tax Advice' started by PJeck, Mar 14, 2013.

  1. PJeck

    PJeck Registered Member

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    I made some investments in a few JVs last year, and sent that money to fellow BHW users via Paypal. Any idea if I can file any of that off as expenses on my taxes? I'm doing my 2012 taxes right now, and it would be awesome if I could lower my income a bit with those investments (that didn't pan out, btw).

    Thanks in advance!
     
  2. SpookSEO

    SpookSEO Senior Member

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    I'm no accountant, but if they are business expenses then you can write them off. I believe there's a different between an 'investment' and an 'expense' though, so you want to decide which of these two the expenditure was.
     
  3. efwebs

    efwebs Regular Member

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    Yes, but in order for them to qualify as a business, your business needs to eventually show a profit within a few years. Usually. Otherwise, I would have some good records that you intended to make a profit with this money (like a contract agreement with the other party explaining how you were going to get your money back).
     
    Last edited: Mar 14, 2013
  4. innocent_kid

    innocent_kid Power Member

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    just tok to that guy and if he agrees than i guess u can mark it as expenses :p
     
  5. PJeck

    PJeck Registered Member

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    Thanks for all the advice. My business already shows a profit, as I did contracted work for an ad network and made around $15,000. The investments I made totaled $9000. For a more specific answer, how/where should I deduct that $9000 from my $15,000 income? It seems like a huge amount to take out of my income, and I'd hate to be audited, unless this sort of thing is not prone to raising any flags.

    Any ideas?
     
  6. PJeck

    PJeck Registered Member

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    This is good news, as I do have those records from both parties I did investments with. Contracts that outline all details of intended profit sharing.

    The thing that could make this tricky, however, is that my business will most likely not be active this year and in following years, as I've since began working for a company with no current plans to leave or earn self-employed income on the side. Hopefully the documentation for those investments that didn't work out will be enough?
     
  7. efwebs

    efwebs Regular Member

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    There is an IRS form that allows you to attach documents to your return, to clear up any questions. You can attach the contracts or agreements that show how the investment was spent. Or just call it out as "JV Expense" when you list your expenses. It doesn't need to be more complicated than that. If you were audited, the most common audit is just them contacting you for more information about a specific thing - like they may ask to see proof of the expense. You don't have to open all your books and sit down with them. That is usually reserved for people making lots of money.

    (one thing to note on that...there may be different rules if you only invested money and didn't actively participate in the JV. If you are a silent partner, then it would be an investment, rather than a business venture. Hopefully you are least advised them in some way so that you can say it was part of your other online marketing business. It's worth looking at a book on taxes for small businesses, which is easy enough to find on the internet)
     
    Last edited: Mar 14, 2013
  8. efwebs

    efwebs Regular Member

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    If you are claiming the $9000 loss in the same year you are claiming a $15,000 profit, so that you are still showing a net gain (and paying taxes on it), you won't need to justify the loss down the road. What they don't want to see, especially with internet marketers, is people just showing losses every year for the deduction from their other income. The IRS would qualify that as a hobby, not a business.
     
  9. PJeck

    PJeck Registered Member

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    Man, I really appreciate all the advice you've given me so far. I'll definitely be looking into a book on taxes, but I do just have one last question, so I can get this filed in the meantime. Where would be the most appropriate field to file these expenses? I'm using a tax program that really simplifies everything, and the closest fields I can find are for Advertising or Contract Labor expenses. Would either of those be the right place? Otherwise, there's Office Expense, Repairs/Maintenance, and Supplies. I just want to make sure the numbers go into the right place before I submit this.

    Thanks again!
     
  10. efwebs

    efwebs Regular Member

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    I filed with Tax Act online, and they had the pre-filled forms for Advertising, Contracts, Insurance, etc, but they also give you a place to list all of your other expenses or deductions, and I usually added things like "proxy expenses", "domain expenses", "hosting" etc. That is where I would like "Joint Venture Expenses". Every business is going to have their own list of expenses, so I think they have to have a place somewhere for you to list them.
     
  11. burnett4congress

    burnett4congress Jr. VIP Jr. VIP Premium Member

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    If you are doing a schedule c, there should be a line for "other expenses". I think it is line 22 or something. Bottom right corner of the expenses boxes.

    Then on page 2 you can itemize those other expenses.
     
  12. IMTopgun

    IMTopgun Jr. VIP Jr. VIP Premium Member

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    An investment cannot be expensed directly unless it qualifies for certain tax advantages like equipment purchases, etc. An expense such as advertising, promotion, supplies purchased to conduct business, course, etc. can be deducted in most cases. You will need to have some business income so you offsedt the business expenses. In other words, if you are on salary and doing IM part time you may not be able to fully deduct your "business" expenses until you show business income. Check with your Accountant to if you fall into that category.
     
  13. burnett4congress

    burnett4congress Jr. VIP Jr. VIP Premium Member

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    Bad debts are business expenses though...
     
  14. WCO12

    WCO12 Junior Member

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    It depends on the arrangement made for each JV (equity/profit share arrangement, loan, etc.).

    If you're going to try to treat it as a loan and declare it as a bad debt you'll need to be able to show that it was a real loan with enforceable terms, that you made debt collection efforts, and why you're giving up on the debt. Bad debts with no supporting documentation is a nice audit red flag.

    On the other hand, if you treat it as a normal business expense you should be prepared to justify that as well. For example, if you threw money into a project you were both working on trying to make a profit that is then shared in some way it could be expensed, but you'll probably want to keep a log of the individual costs that went into the project. If it looks like a loan and smells like a loan, the IRS could declare it a loan and not let you write it off until it's been deemed a bad debt.