A taxpayer can’t deduct start-up expenses if he or she abandons the business before it ever gets off the ground, the Tax Court ruled in a recent case.
The case involves a couple who owned two residential properties in 2016. For various reasons, they decided to explore income-generating activities separate and apart from their educational and professional backgrounds.
Later in the year, the couple formed their own real estate education company as an S corporation and owned 100% of the stock — but did little else to further their business. They generated no revenue.
But on their 2016 tax return, the couple deducted business expenses, including the cost of the courses, and claimed a large loss. The IRS issued a notice of deficiency. See more details.