What to do?

Question

I started a home business Sept 2019, I have state (TX) and Federal tax numbers, but never filed a DBA or anything. I have $35000 in deductions from then, but did not file last year and have only finally gotten a taxable large sale to claim. I know today's not the day to worry, but What do I need to do? Can I file without a DBA? Can I claim the deductions still?   Should I file an extension today since i'm obviously not getting it done today? How do I even go about that?  UGH!  Divorced and lost. Please help.  Thanks.

gloriah5200 · Answer

No, a DBA is not required to have a business. Most businesses just have one business name and use it to do business.

You should still be able to claim the deductions once you figure out how to categorize all of them and divide between the two years returns.

You can still file a "late filed" 2019 return. However it is considered late, so if you owe a balance due on your return, then late filing and late paying penalties are already accumulating.

IRS has extended the filing deadline for 2020 returns until May 17, 2021. If you can prepare the 2019 and the 2020 so they are able to be filed by that date, then you can work on them and file them by May 17, without needing to file an extension.

If you are not sure, then you can start working on them and then when it gets close to May 17, 2021, if you can see you won't be ready to file the 2021 return by that date, then you can file an extension for the 2020 return. The 2019 return is already late, so you just need to get it filed as soon as possible so you can get on with the 2020 return since it is based on 2019 since that is when the businss began.

Please refer to the following IRS Publication to find out how to separate those business expenses into categories. The category groups are handled differently on your tax return;

Some expenses have to be "accumulated" or saved up and then the total of the group can be amortized or depreciated and deducted over years once the "doors are open for business". This might be the method you use for "start-up costs" and yet you may be able to deduct a specific amount in the year you start the business and the remainder over a period of years.
Some expenses are deductible in the year that you paid them. This would apply to business expenses like utility bills or office supplies purchased after you opened the business
Some expenses are only depreciable or amortizable over several years, depending on the asset class they fall under. This could apply to machinery or equipment used to operate your business operations, like the steam machine for a T-shirt decorating shop. IRS Publication for Depreciation
Some expenses in certain ways or maybe in a "combination" of methods like car mileage...depending on your usage, it may be depreciable and you may be able to deduct all the "business" expenses on your personal car including depreciation, or you may be able to take the standard mileage rate for each business mile you drive.
IRS Publication for auto expenses

A few rules to look into:

Business expenses are "ordinary and necessary expenses required to operate your business".

Depreciation of equipment and business assets is "allowed or allowable", meaning that if you are entitled to take the depreciation deduction, then you must reduce the adjusted basis of the asset by the amount of depreciation or amortization you take. If you do not want to deduct it, that is okay, because IRS says you are still required to reduce the adjusted basis of the business assets for the amount you were entitled to take, whether you took the deduction or not.

If you carry an inventory, you will need to determine the inventory costs for 2019 and 2020 and what the ending inventory was at the end of each year.

You may qualify to deduct Office in Home expenses for your business. For additional details, please refer to:

IRS Pub 587 Home Office Deduction

For additional information please refer to the following publication for information about setting up and deducting expenses for a small business:

IRS Publication 334 Guide for Small Business

You are going to need to go through your expenses and divide them by category (refer to pub 334) and then divide them by date paid so you know which expenses would be deductible for 2019 when the doors were open for business and which expenses are not deductible until 2020.

Income earned will be taxed in the calendar year the money was received.

Once you divide everything up per year, then you are going to need to determine what will be on the 2019 return first and do that return and then after that, you will need to prepare and file the 2020 return.