USA Can I Claim Business Losses for a Business I Started While Still Receiving Unemployment?

[Greylo]

Hello Forum. I received unemployment insurance most of last year during the pandemic, but I also started my own business and paid coders and developers at the same time as receiving unemployment benefits. Can I claim business losses on this year's IRS filing while also showing income from unemployment benefits? Very confused as to what to do, thanks for any help.

 

[MoralesTax]

Hello there!

The simple answer is yes; you can technically do so. I am not aware of any laws that state the contrary. However, you should be mindful of the following -
1) Unemployment is reported to the IRS, but it is a state-run program.
2) You would be wise to not show earned income (wages) during the time you claimed unemployment benefits.
3) Although the IRS accepts losses, especially with new businesses, they do flag businesses that file expenses and reported no income.

 

[Greylo]

Hello there!

The simple answer is yes; you can technically do so. I am not aware of any laws that state the contrary. However, you should be mindful of the following -
1) Unemployment is reported to the IRS, but it is a state-run program.
2) You would be wise to not show earned income (wages) during the time you claimed unemployment benefits.
3) Although the IRS accepts losses, especially with new businesses, they do flag businesses that file expenses and reported no income.

Thank you so much, Mr. Morales, that helps me tremendously. I have read that "startups" can write off development expenses, but wasn't sure how the unemployment would play into this. Based on your reply and what I've read, I'll try to write off those expenses for this year's filing because there is no clear answer to this -- that I've found -- on the IRS web site. Thanks again, and have a good Valentine's Day~

 

[MoralesTax]

If you had no income, you should amortize your development expenses. You can elect to deduct up to $5K of those expenses in the year (for Start-up expenses).

You're welcome, best of luck to you and Happy Valentine Day's as well