Can we write-off business expenses when we don't have business income?

QUESTION.
We decided to incorporate our business before getting too far into the process and before making any sales. Incorporation was effective 10/5/06. We have not started to do business yet - still building Web site that will be our "store." Do I have to file a Form 1120S with the IRS for 2006 since we didn't do any business in that year? Also, can we write off the $$ we spent on books, software, etc., that we spent in 2006 before we incorporated, on a Schedule C?

ANSWER.
You do not have to file a tax return unless you have business income. Therefore you do not have to file an 1120S for 2006. You can capitalize the costs you paid for books, software, etc in 2006 and write them off in 2007 assuming you expect to have income then.

You cannot write off the books, software etc on your personal Schedule C because you can't offset business expenses against W-2 income.

I hope you have written a sound business plan. I say this because normally I advise my SCORE clients to finish the plan before forming their legal entity. If you had a plan, then you would be making money right out of the blocks. And you would only have incorporated after you had the plan in place. See

PICK A BUSINESS
WRITE A BUSINESS PLAN

I hope my comments are helpful. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
www.jlippin.com