Deducting last years (undocumented) side business loss
You should speak to a good tax adviser. The less documentation you have the more problems IRS are going to cause you. Generally you can deduct business losses (in the year they occurred, which is 2011), but you have to show that that was a valid business, not just a way to reduce your tax bill with personal expenses. Thus lack of documentation reduces your ability to prove that you're entitled to the deduction. The burden of proof is generally on you. You can not deduct it from 2012 taxes, but you can still amend 2011. Keep in mind though that amended returns have higher chance of audit, and a significant business loss on a business that only existed that year is a major red flag which will raise the probability of an audit to very high percentage. Theoretically, if the business was real and just failed - you can definitely deduct this. But practically, lack of documentation may cause too big a problem, and a tax adviser might suggest you giving it up if he doesn't think you have a real chance to convince the IRS. Definitely don't do that without a professional advice. It is worth fighting for, its quite a loss, but don't do it on your own as you will definitely lose.
The IRS' primary reference Pub 519 Tax Guide for Aliens -- current year online (current and previous years downloadable in PDF from the Forms&Pubs section of the website) says NO: Students and business apprentices from India.   A special rule applies .... You can claim the standard deduction .... Use Worksheet 5-1 to figure your standard deduction. If you are married and your spouse files a return and itemizes deductions, you cannot take the standard deduction. Note the last sentence, which is clearly an exception to the 'India rule', which is already an exception to the general rule that nonresident filers never get the standard deduction. Of course this is the IRS' interpretation of the law (which is defined to include ratified treaties); if you think they are wrong, you could claim the deduction anyway and when they assess the additional tax (and demand payment) take it to US Tax Court -- but I suspect the legal fees will cost you more than the marginal tax on $6300, even under Tax Court's simplified procedures for small cases. I am not an accountant, but I have a light accounting background, despite being primarily an engineer.  I also have a tiny schedule C business which has both better and worse years.  I am also in the United States and pay US taxes.  I assume you are referring to the US Form 1040 tax return, with the attached Schedule C.  However little I know about US taxes, I know nothing about foreign taxes. You are a cash-basis taxpayer, so the transactions that happen in each tax year are based on the cash paid and cash received in that year.  You were paid last year, you computed your schedule C based on last year's actual transactions, and you paid taxes on that income. You can not recompute last years schedule C based on the warranty claim. You might want to switch to an accrual accounting method, where you can book allowances for warranty claims.  It is more complex, and if your business is spotty and low volume, it may be more trouble than it is worth. At this point, you have two months to look for ways to shift expenses into next year or being income into this year, both of which help offset this loss. Perhaps a really aggressive accountant would advise otherwise (and remember, I am not an accountant), but I would take the lumps and move on. This article on LegalZoom (link here) discusses how to apply a significant net operating loss (NOL) in this year to the previous two years, and potentially carry it forward to the next two years.  This does involve filing amended returns for the prior two years, showing this year's NOL.  For this to be relevant, your schedule C loss this year must exceed your other W2 and self-employment income this year, with other tests also applied. Perhaps a really aggressive accountant would advise otherwise (and remember, I am not an accountant), but I would take the lumps and move on. If i am not wrong, any business activities such should be declared on Year End Tax filing. If your friend is going to own that website either it is commercial or nonprofit, he has to declare in the year end taxation. Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile. "Short answer: Yes. For Federal income tax purposes, you are taxed on your total income, adding up positives and negatives. If business A made, say, $100,000 while business B lost $20,000, then your total income is $80,000, and that's what you'll be taxed on. As @littleadv says, of course any business losses you claim must qualify as business losses under IRS rules. And yes, there are special rules about losses that the IRS considers ""passive"". If you have wage income in addition to business income, business losses don't offset wage income for social security and medicare tax purposes. You can't get a refund of the social security tax deducted from your paycheck. I don't know if this is relevant to you, but: If you have businesses in different states, each is taxed by that state. For example I have two tiny side businesses, one in Michigan and one in Ohio. Last year the Michigan business made money while the Ohio business lost money. So my federal income was Michigan minus Ohio. My Ohio income was negative so I owed no Ohio income tax. But I couldn't subtract my Ohio losses from my Michigan income for Michigan income tax purposes. Thus, having, say, $10,000 income in Michigan and $10,000 in Ohio would result in lower taxes than $30,000 income in Michigan and a $10,000 loss in Ohio, even though the total income in both cases is the same. And this would be true even if the tax rates in both states were identical." "I have done several days of additional research on this and found out that it appears I can deduct the cost of the books against a single year's royalty income by claiming a Section 179 deduction. The steps are as follows: (1) Write the maximum amount of property you can claim under section 179 on line 1 of Form 4562. (2) Add up the total cost of section 179 property you began using during the tax year, including books, and record the amount on line 2. (3) Write the limit of your deductions on line 3. (4) Subtract the amount on line 2 from the amount on line 3 and record it on line 4. If line 3 is larger than line 2, simply write ""0"" on line 4, then subtract the amount on line 4 from the amount on line 1 and record on line 5. Step 5 (5) Describe the property and books on line 6 and record the cost of each in section b. Write the amount of the expense you are claiming for each item in section c of line 6. You can claim the entire cost of the books. (6) Add the amount in line 6 c to any amounts on line 7 and write the total on line 8. Write either the amount on line 8 or the amount on 5 on line 9, depending on which is smaller. (7) Write the amount of your Schedule C income on line 11, unless it is greater than $500,000. On line 12, write the amount of your deduction, which is the total of line 9 plus any carry-over you may have had from the previous year. (8) Record the amount of your deduction for section 179 books and property on line 13 of your Schedule C, not line 22. Include form 4562 when you hand in your tax return. source: ""How to Deduct Books for Self-Employed"" by Emily Weller" I'm no tax expert by any means. I do know that a disreagarded entity is considered a sole proprietor for federal tax purposes. My understanding is that this means your personal tax year and your business tax year must be one and the same. Nevertheless, it is technically possible to have a non-calendar fiscal year as an individual. This is so rare that I'm unable to find a an IRS reference to this. The best reference I could find was this article written by two CPAs. If you really want to persue this, you basically need to talk with an accountant, since this is complicated, and required keeping propper accounting records for your personal life, in addition to your business. A ledger creqated after-the-fact by an accountant has been ruled insufficent. You really need to live by the fiscal year you choose. This loss would be unrealized and, assuming you're a cash-basis tax-payer, you would not be able to take a loss on your 2014 tax return. This is similar to if you held a stock that lost 50% of its value. You wouldn't be able to claim this loss until you finally sold it.  The link that User58220 posted may come into play if you converted your UAH back to USD. IRS Publication 463 is a great resource to help you understand what you can and can't deduct.  It's not a yes/no question, it depends on the exact company use, other use, and contemporaneous record keeping. A non-resident alien is only allowed for deductions connected to producing a US-sourced income (See IRC Sec. 873). Thus you can only deduct things that qualify as business expenses, and State taxes on your wages. In addition you can deduct a bunch of stuff explicitly allowed (like tax preparation, charitable contributions, casualty losses, etc) but sales tax is not in that list. "Hobby expenses are not tax deductible.  Business expenses are, but only if it's a bona fide business.  First they look at profitability: if you reported a net profit (i.e. paid taxes) in your first 3 years, they will believe you rant on Youtube for a living.   Remember, by the time they get around to auditing you, you'll likely be well into, or through, your third year.   There is an exception for farms.  Other than that, if you lose money year after year, you better be able to show that you look, walk and quack like a business; and one with a reasonable business reason for delayed profitability.  For instance Netflix's old business model of mailing DVDs had very high fixed infrastructure expense that took years to turn profitable, but was a very sensible model.  They're fine with that.  Pets.com swandived into oblivion but they earnestly tried. They're fine with that too.  You can't mix all your activities. If you're an electrician specializing in IoT and smart homes, can you deduct a trip to the CES trade show, you bet.  Blackhat conference, arguable.  SES?  No way.  Now if you had a second business of a product-reco site which profited by ads and affiliate links, then SES would be fine to deduct from that business.  But if this second business loses money every year, it's a hobby and not deductible at all.  That person would want separate accounting books for the electrician and webmaster businesses.  That's a basic ""duck test"" of a business vs. a hobby. You need to be able to show how each business gets income and pays expense separate from every other business and your personal life.  It's a best-practice to give each business a separate checking account and checkbook. You don't need to risk tax penalties on a business-larva that may never pupate.  You can amend your taxes up to 3 years after the proper filing date.  I save my expense reciepts for each tax year, and if a business becomes justifiable, I go back and amend past years' tax forms, taking those deductions.  IRS gives me a refund check, with interest!" Generally stock trades will require an additional Capital Gains and Losses form included with a 1040, known as Schedule D (summary) and Schedule D-1 (itemized).  That year I believe the maximum declarable Capital loss was $3000--the rest could carry over to future years. The purchase date/year only matters insofar as to rank the lot as short term or long term(a position held 365 days or longer), short term typically but depends on actual asset taxed then at 25%, long term 15%.  The year a position was closed(eg. sold) tells you which year's filing it belongs in. The tiny $16.08 interest earned probably goes into Schedule B, typically a short form. The IRS actually has a hotline 800-829-1040 (Individuals)  for quick questions such as advising which previous-year filing forms they'd expect from you.  Be sure to explain the custodial situation and that it all recently came to your awareness etc. Disclaimer: I am no specialist. You'd need to verify everything I wrote; it was just from personal experience with the IRS and taxes. You can only deduct (with the 2% AGI threshold) expenses that: You've actually incurred. I.e.: you actually paid for equipment or services provided and can show receipts for the payment. At the request of the employer. I.e.: you didn't just decide on your own to buy a new book or take a class, your employer told you to. With business necessity. I.e.: it was in order for you to do your job. And you were not reimbursed by your employer. I.e.: you went somewhere and spent your after tax money on something employer explicitly told you to pay for, and you didn't get reimbursed for that. From your story - these conditions don't hold for you. As I said in the comments - I strongly suggest you talk to a lawyer. Your story just doesn't make any sense, and I suspect your employer is doing something very fishy here. "I am going to keep things very simple and explain the common-sense reason why the accountant is right: Also, my sister in law owns a small restaurant, where they claim their accountant informed them of the same thing, where a portion of their business purchases had to be counted as taxable personal income. In this case, they said their actual income for the year (through their paychecks) was around 40-50K, but because of this detail, their taxable income came out to be around 180K, causing them to owe a huge amount of tax (30K ish). Consider them and a similarly situated couple that didn't make these purchases. Your sister in law is better off in that she has the benefit of these purchases (increasing the value of her business and her expected future income), but she's worse off because she got less pay. Presumably, she thought this was a fair trade, otherwise she wouldn't have made those purchases. So why should she pay any less in taxes? There's no reason making fair trades should reduce anyone's tax burden. Now, as the items she purchased lose value, that will be a business loss called ""depreciation"". That will be deductible. But the purchases themselves are not, and the income that generated the money to make those purchases is taxable. Generally speaking, business gains are taxable, regardless of what you do with the money (whether you pay yourself, invest it, leave it in the business, or whatever). Generally speaking, only business losses or expenses are deductible. A purchase is an even exchange of income for valuable property -- even exchanges are not deductions because the gain of the thing purchased already fairly compensates you for the cost. You don't specify the exact tax status of the business, but there are really only two types of possibilities. It can be separately taxed as a corporation or it can be treated essentially as if it didn't exist. In the former case, corporate income tax would be due on the revenue that was used to pay for the purchases. There would be no personal income tax due. But it's very unlikely this situation applies as it means all profits taken out of the business are taxed twice and so small businesses are rarely organized this way. In the latter case, which is almost certainly the one that applies, business income is treated as self-employment income. In this case, the income that paid for the purchases is taxable, self-employment income. Since a purchase is not a deductible expense, there is no deduction to offset this income. So, again, the key points are: How much she paid herself doesn't matter. Business income is taxable regardless of what you do with it. When a business pays an expense, it has a loss that is deductible against profits. But when a business makes a purchase, it has neither a gain nor a loss. If a restaurant buys a new stove, it trades some money for a stove, presumably a fair trade. It has had no profit and no loss, so this transaction has no immediate effect on the taxes. (There are some exceptions, but presumably the accountant determined that those don't apply.) When the property of a business loses value, that is usually a deductible loss. So over time, a newly-purchased stove will lose value. That is a loss that is deductible. The important thing to understand is that as far as the IRS is concerned, whether you pay yourself the money or not doesn't matter, business income is taxable and only business losses or expenses are deductible. Investments or purchases of capital assets are neither losses nor expenses. There are ways you can opt to have the business taxed separately so only what you pay yourself shows up on your personal taxes. But unless the business is losing money or needs to hold large profits against future expenses, this is generally a worse deal because money you take out of the business is taxed twice -- once as business income and again as personal income. Update: Does the business eventually, over the course of the depreciation schedule, end up getting all of the original $2,000 tax burden back? Possibly. Ultimately, the entire cost of the item is deductible. That won't necessarily translate into getting the taxes back. But that's really not the right way to think about it. The tax burden was on the income earned. Upon immediate replacement, hypothetically with the exact same model, same cost, same 'value', isn't it correct that the ""value"" of the business only went up by the amount the original item had depreciated? Yes. If you dispose of or sell a capital asset, you will have a gain or loss based on the difference between your remaining basis in the asset and whatever you got for the asset. Wouldn't the tax burden then only be $400? Approximately, yes. The disposal of the original asset would cause a loss of the difference between your remaining basis in the asset and what you got for it (which might be zero). The new asset would then begin depreciating. You are making things a bit more difficult to understand though by focusing on the amount of taxes due rather than the amount of taxable gain or loss you have. They don't always correlate directly (because tax rates can vary)." I don't see a tag for United States, so I'm having to assume this is US taxes.  It doesn't matter what app you use, IRS trades are all calculated the same. First, you have to report each trade on a 8949 and from that the totals go into a schedule D.  Short term trades are stocks that you've kept exactly one year or less, long term trades are for 1 year + 1 day or more.  Trades where you sold a stock for a loss, then bought that stock back again under 30 days don't get to count as a loss.  This only affects realized capital gains and losses, you don't count fees. First, take all of your short term gains then offset them by all of your short term losses.  Do the same for long term gains and losses.  Short and long term gains are taxed at different rates.  You can deduct losses from short term to your long term and vice versa.  Then you can deduct the total losses up to $3000 (household, $1500 married, filing separately) per year on your regular income taxes or other dividend taxes.  If you have over $3000 in losses, then you need to carry that over to subsequent years. Edited per Dave's comments: thanks Dave