Existing inventory when starting a business

I am aware of those guidelines, the presumption of for profit basis. However, both the accountants I've talked to in the past on this said while it was a guideline for taxpayers for the presumption of 'for profit' basis, even if a business posted consecutive losses they can still deduct all normal deductions if they can prove they are in fact a business to make a profit, and the taxpayer is not using the business to hide hobby deductions.

The guidelines and presumption are just an automatic 'litmus test' in lieu of actual proof. If you fail the litmus test, then you shoulder the burden of proof in order to still get the deductions and 'for profit' status. The act of consecutive losses is not the nail in the coffin, just the loss of the automatic presumption.

I need to meet again with my accountant in the next month for year end stuff anyway, I'll bring it back up and see if I can get a more clear reference. This is only my understanding from previous conversations early on in my startup phase.

I guess I should have been more clear in my response. You are correct in your thinking. You can take the loss if you continiously show a loss (even after three years), but the problem is that you really start to go under the microscope with the IRS. If you lose money year after year you'll have to be able to show that you're legitmately in business to make a profit, which in some cases the IRS has requested to see business plans, future contracts, etc. It is legal, although not really advised because you can potentially be opening up a door for the IRS to put everything under scrutiny. Sometimes it's just not worth the hassle.

Unfortunately, photographers are usually under the most scrutiny because there are so many "hobbyist" out there doing it. A Sch C business showing "Photographer" as the type of business is usually a red flag to begin with, especially if you have some sort of W-2 income on your return.

I agree, its obviously best to show a profit for the presumption since its the easiest route to take. I just wanted to clarify since things could have changed since my understanding of it, which was several years ago, nor leave anyone thinking there is no other option.

And yes, anything to avoid the microscope is worth pursuing!

[QUOTE=sfaust;10873564​] I just wanted to clarify since things could have changed since my understanding of it, which was several years ago, nor leave anyone thinking there is no other option. QUOTE]

I totally agree. Especially since most people think that just because they read it on the internet it has to be true