How to Report Business Loss

According to United States revenue and tax law, all businesses that file taxes are eligible to report their business expenses as tax deductions. This means that the business will ultimately owe fewer taxes. If the expenses of a business for the year are greater than its total income, the business can report a net operating loss when filing its taxes with the Internal Revenue Service (IRS). Fortunately, the IRS makes reporting a business loss a direct and simple process for a small business sole proprietorship.

• 1

  Fill in your business contact information on Schedule C of Form 1040. This is the Profit and Loss statement for business tax filing. You must fill in all applicable information, including your account method. Depending on the structure of your business, you must enter your social security number or your employer identification number in Section D.

• 2

  Complete the "Income" section of Schedule C. Enter the gross receipt of your business sales in Line 1. If you had any returns of merchandise or returned your customers' payments for any reason, enter the total amount of returns in Line 2, then subtract your returns total from your sales total and enter it in Line 3. In Line 4, enter what your goods cost you prior to selling them. If needed, fill out the second page of Schedule C to calculate the cost of your goods. Enter the total at the end of this worksheet in Line 4 of the first page. Follow the instructions for lines 5 to 7. The total in Line 7 is the total gross income for your business for the year.

• 3

  Complete the Expenses section of Schedule C. This section allows you to itemize your business expenses in significant detail. Ensure that you have careful, hard-copy records for each of these expenses, in case of a future audit. If you are including the business use of your home as part of your business expenses claim, you must attach the Form 8829 worksheet in order to itemize those expenses separately.

• 4

  Determine if your business has operated at a loss for the year. On Line 31 of Schedule C, you must subtract your total expenses from your tentative business profit or loss up to that point. If the expenses are greater than your profits, your business must report a loss to the IRS. You must also complete Line 32, indicating whether your loss means that all of your business investment is at risk for loss, or only partially at risk.

• 5

  Attach Schedule C to your completed 1040 tax form. Mail all the forms, including any necessary additional forms and expense sheets, to the IRS as part of your completed tax return.