Loss or break even on a new C Corp Single officer

[Lexi D]

Can a C corp show a loss in the first year or three and not draw the IRS down on them? Or is the break even the way to go? If the C corp only has one officer, I am not talking a huge loss just a small one of $10,000 or less.

[Brian EA]

What do you mean by breakeven is the way to go.
You file the return based on what is on the books. If the IRS gets down on you then you will have to provide proof.

If it is a loss then it is a loss

[Bird Legs]

C Corp.NOL

Yes, the C Corp. can show a loss in the first year. This loss is then carried forward to
offset any profits in future years.

[rosieea]

If the reason for the loss is unreasonably high officer salaries, there would be a problem. Otherwise, I know of nothing that should cause concern.

[Matt Sova]

Gm

Is a HUGE corporation that has posted BILLIONS of dollars in losses for more than 3 years in a row during it's history. Do you think they are worried that the IRS is going to come in and say they are a hobby?

Loss is loss, record it as such.

[Bees Knees]

C corporations are not subject to the hobby loss rules. Only individuals and S corporations are subject to the rules [IRC Section 183(a)].

A C corporation can have losses for the next thousand years and the IRS won't care. C corporations never get any benefit from a loss until they have a gain year to carry it to. And they only have a 2 year back, 20 year forward opportunity to use the NOL, otherwise, it goes away forever.

[OldJack]

A C corporation can have losses for the next thousand years and the IRS won't care. C corporations never get any benefit from a loss until they have a gain year to carry it to.

Well not exactly. If the loss is obviously not a real loss due to some creative accounting the IRS will be very interested. As an example for a small business accruing shareholder officers salary and other benefits could create a loss year but is not allowed. Accruing liabilities or debts that are uncertain could create a loss but not allowed. Taking a shareholder/officer unreasonably high salary could create a loss and the IRS might be interested as they might want to reclassify part as taxable dividends.

Generally I agree that the IRS doesn't pay much attention to a C-corp with a NOL. However, I have intentionally had clients create losses in one year to carryback and get refunds of previous taxes. It can be a big corp "benefit" like income averaging if you control things especially if you balance the C-corp profits to stay in the lower brackets and also balance the salary or dividends going to the shareholder 1040 to stay in an equal tax bracket. It is definitely a game if you know how to play.

[Bees Knees]

My comment was in reference to legitimate expenses of a C corporation. Matt said large corporations are not worried about hobby loss rules because they are legitimate businesses. True, but they are also C corporations. You CAN set up a hobby as a C corporation and take losses all you want. The IRS cannot disallow the loss under hobby loss rules, because C corporations are not subject to them.

[Matt Sova]

Exactly

I kind of stopped explaining the whole thing in my post. That's what happens when you try to post after a couple of beers. Thanks for clearing the haze I created Bees.

Matt