What is considered a "loss" in regards to tax and small business?

Question

I am thinking about becoming a Pampered Chef Consultant, which is technically considered my own small business. I will recieve a 1099 and I am able to deduct expenses including milage, home office expences, ingredients, etc. I was told that I might show a "loss" for the first year or so while I am getting my business up and running.

Can you explain what this is exactly? Does this mean that I don't pay any taxes? That I don't make a profit? I am so confused.

Thanks for your help!

Answer 1

Best Answer - Chosen by Voters

If your expenses are greater than your income, you have a loss. Hopefully you have some other means to survive for the first 2 or 3 years of your new business. That could be savings, a "real" job, or an angel investor willing to front the capital you'll need to get started.

Answer 2

If your expenses exceed the amount of income as shown on the 1099, then you may not have to pay taxes on it. However, if your are showing a loss, some of that home office expense may not be deductible this year.
Any allowable net loss can be used to offset any other taxable income you have for that year.
Its even possible, if you have no other income, that the loss can be carry forward to future years when you start to make a profit.