What does De Sylva v. Commissioner of Internal Revenue mean for entrepreneurs?

You could call it a cautionary tale.

In 2004, Robert De Sylva of California bought a boat with the intent of modifying it with a helipad and renting it to people wealthy enough to want to land their helicopters on boats. Eight years, $50,000, and multiple mishaps later, the boat was still not in service, and De Sylva tried to use losses from the boat rental business he intended to start to offset the tax bill for an existing business.

He filed suit in U.S. Tax Court Sept. 27, 2018, and the court ruled against him, saying that the losses couldn’t be deducted because the business had not started. The boat had never left its dock.

Risky business

Starting a business is risky enough for entrepreneurs, and this ruling may have made it riskier. Don’t count on being able to deduct business expenses in a tax year before your business opens its doors. The ruling could also leave an entrepreneur on the hook for losses in the event that a business fails before it gets off the ground.

The case mentions that it was De Sylva’s responsibility to prove that his deductions were real and appropriate. The only way to do that is thorough documentation.

How we can help

The case highlights the importance of entering business with a solid plan before throwing your hard-earned money into large purchases. It also shows how lack of documentation can put you in a bind when taxes are due.

Numbers House specializes in getting small businesses off the ground and running right without expensive, preventable snafus. We offer business planning, bookkeeping, operating agreements, payroll services and more. Our turnkey approach takes the load off you so you can concentrate on running your business right from day one.

Partnering with an experienced firm like Numbers House can set your business startup on firm ground instead of a sinking ship. Contact us at (865) 294-7300 or email us at hello@thenumbershouse.com to find out more.

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