Taxes: Deductions for a business with no income?

With the April 15 tax deadline fast approaching, you probably have questions. Fortunately, we have answers. Every day until April 15, members of the American Institute of Certified Public Accountants have agreed to answer selected tax questions fromUSA TODAY readers. Submit your questions to jwaggoner@usatoday.com.

Q. I have a limited liability company out of my home which has not done any business since 2012, and I do not foresee any business or income from it in the near future. Is it Ok to keep claiming the deductions (utilities, health insurance, etc.) for it every year, assuming I don't decide to dissolve the business?

A. It is unlikely these are deductible business expenses. The law (IRC §162) states, "There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business…" Since there does not appear to be a business being carried on, these amounts would not be deductible as business expenses.

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Some of the expenses might be deductible as non-business deductions. For example, health Insurance might be deductible as a medical expense or mortgage interest might be deductible as an itemized deduction.

If these costs are related to closing down a business, then some of them may be deductible. However, the deductions related to a home office are generally limited by income and require that the area be used exclusively and regularly as the principle place of business. If the business is closed down, it will be hard to satisfy these criteria.

Conrad Davis, partner, Crowe Horwath LLP, Washington, D.C.

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