Starting a business, important tax question...

[fish2plus2]

lets say that i want to start a tshirt business for this example.

I spend $100,000 in Jan 2006 to start the business.

i then make sales of $60,000 during the rest of 2006, so I am still $40,000 in the hole. What taxes do I have to pay for 2006?

After making $60,000 in 2006, I make $50,000 in 2007. What taxes do I have to pay in 2007?

[Platonic]

You can likely write off most of that 60k. If you reinvest some of that 60k you can write it off too. You are liable for sales and use taxes no matter what, as well as business taxes for your area.

$50,000 in 07 you also owe sales / use tax. Again you can write off new expenses, and you can write off certain fixed cost items that you couldnt completely write off the previous year. I.E. if you spent 10,000 on an embroidery machine you can't write off all 10,000 in that first year, I think you have to do it in 1/7ths over the next 7 years. I don't remember for sure.

I haven't had to worry with my T shirt business because all income is immediately re-invested.

Ofcourse there is always that sales tax though.

Platonic

[ahnuld]

I doubt you can consider the 100k as a loss. Part of it goes into assets which are depreciated providing for a future tax shield, and part of it are expenses which offset your revenue.