If I lose my business license, can I still sell?

[MelissaG]

So I found out that the IRS can refuse to renew your business license if you are very small and are non profitable for several years in a row. They apparently consider it just an expensive hobby. They did renew it for this year but I'm worried about what will happen next year. In the past three years (this is my fourth year in business), I've broken even only once, the other years were in the red. If the IRS were to decide not to renew my license next year, does that mean I'm just plain done? I don't even know who to ask about this so I thought I'd ask here. I live in the US.

I hope what I posted makes sense. I was doing well before I broke my ankle, now everything is at a stand still since nothing ever sells online. I had started a GoImagine site not long before this happened but now even taking pictures means moving things around, carrying things, etc which I just can't do. I just got my walking boot and it's a major production just to walk or stand never mind moving things around to get pictures. I'm scared of whats going to happen.

 

[not_ally]

I am not a tax lawyer, so take this for what it's worth. I think your business license would be issued by whatever state/local entities regulate such things, as they are state matters and the IRS has nothing to do with that. What the IRS could do is disallow your work related deductions/write-offs if they decide that your soaping is a hobby rather than a business. I am assuming that you don't have massive write-offs connected with your business, that even though you are in the red it's not by the kind of amount that would trigger a review . I think even if you are randomly audited you would likely be OK, ie; I would feel comfortable making the argument (especially because it is true!) that your business has just not been very profitable yet.

Maybe @AliOop would opine, I think she probably knows more about this stuff than I do.

 

[MelissaG]

I am not a tax lawyer, so take this for what it's worth. I think your business license would be issued by whatever state/local entities regulate such things, as they are state matters and the IRS has nothing to do with that. What the IRS could do is disallow your work related deductions/write-offs if they decide that your soaping is a hobby rather than a business. I am assuming that you don't have massive write-offs connected with your business, that even though you are in the red it's not by the kind of amount that would trigger a review . I think even if you are randomly audited you would likely be OK, ie; I would feel comfortable making the argument (especially because it is true!) that your business has just not been very profitable yet.

Maybe @AliOop would opine, I think she probably knows more about this stuff than I do.

Thank you. Much appreciated. No, I don't have massive writeoffs or anything. I was just curious.

 

[AliOop]

I agree with what @not_ally said. The IRS could disallow the business deductions if you don’t make a profit within so many years. However, you could also challenge that based on your injury, which happened after you incurred expenses, but before you could complete your markets.

 

[paradisi]

So I found out that the IRS can refuse to renew your business license if you are very small and are non profitable for several years in a row. They apparently consider it just an expensive hobby. They did renew it for this year but I'm worried about what will happen next year. In the past three years (this is my fourth year in business), I've broken even only once, the other years were in the red. If the IRS were to decide not to renew my license next year, does that mean I'm just plain done? I don't even know who to ask about this so I thought I'd ask here. I live in the US.

I hope what I posted makes sense. I was doing well before I broke my ankle, now everything is at a stand still since nothing ever sells online. I had started a GoImagine site not long before this happened but now even taking pictures means moving things around, carrying things, etc which I just can't do. I just got my walking boot and it's a major production just to walk or stand never mind moving things around to get pictures. I'm scared of whats going to happen.

I've not heard of the IRS having anything to do with renewal or issuing of business licenses.

Cities and states and counties issue those, not the IRS. And that's generally for regulatory and taxation purposes in those locales, no?

I've never heard of the IRS stepping in and demanding those not be renewed.

I have heard of businesses being denied the ability to take business deductions on federal taxes, if they are declared to be hobbies instead of businesses... farms for example where the horse operation doesn't make money ... something like 5 years out of 7??... been a long time since I knew anyone in racing. But those farms continued in business.

Perhaps laws are much different in Louisiana.

 

[MelissaG]

I've not heard of the IRS having anything to do with renewal or issuing of business licenses.

Cities and states and counties issue those, not the IRS. And that's generally for regulatory and taxation purposes in those locales, no?

I've never heard of the IRS stepping in and demanding those not be renewed.

I have heard of businesses being denied the ability to take business deductions on federal taxes, if they are declared to be hobbies instead of businesses... farms for example where the horse operation doesn't make money ... something like 5 years out of 7??... been a long time since I knew anyone in racing. But those farms continued in business.

Perhaps laws are much different in Louisiana.

Yeah, Louisiana is weird. There's a mix of Napoleonic Law and US Law. Makes it hard to know sometimes. I just thought maybe someone was familiar with the oddity.

 

[paradisi]

I found this.. it sounds like not so much cancel like they're booting you, but cancel for being dormant? And one can then renew?

"How to Get a Business License in Louisiana | TRUiC
https://howtostartanllc.com/business-license/louisiana-business-license

Louisiana sales tax certificates are automatically renewed as long as your business is actively reporting sales. Otherwise, renewal must happen within 60 days of the certificate’s expiration date.
Contact the relevant government office for renewal requirements for other licenses your business may have."

 

[cmzaha]

I sold for over 10 yrs and my little business was always in the red and was never questioned.
On the other hand, while the IRS does not issue business Licenses they can take away your business license apparently. Sadly this happened to a relative of mine after a long nasty divorce. He was having an issue paying back some tax commitments and our wonderful IRS pulled his license to continue his business. Makes a lot of sense to shut down one's livelihood. So it is hard to say what IRS will and can do these days.

 

[MelissaG]

I found this.. it sounds like not so much cancel like they're booting you, but cancel for being dormant? And one can then renew?

"How to Get a Business License in Louisiana | TRUiC
https://howtostartanllc.com/business-license/louisiana-business-license

Louisiana sales tax certificates are automatically renewed as long as your business is actively reporting sales. Otherwise, renewal must happen within 60 days of the certificate’s expiration date.
Contact the relevant government office for renewal requirements for other licenses your business may have."

Ok that works. I tried googling but came up with nothing so not sure how you found it. Must not have had the right search words. I'm not sure why they'd care as long as I'm paying my taxes which is why it didn't make sense when someone said that in one of the groups I belong to on facebook. It just seemed weird.

I sold for over 10 yrs and my little business was always in the red and was never questioned.
On the other hand, while the IRS does not issue business Licenses they can take away your business license apparently. Sadly this happened to a relative of mine after a long nasty divorce. He was having an issue paying back some tax commitments and our wonderful IRS pulled his license to continue his business. Makes a lot of sense to shut down one's livelihood. So it is hard to say what IRS will and can do these days.

I've always paid the taxes even when it put me way into the red. I've been working on making it easier for myself for next year though.

There's so much weird stuff going on, I'm never sure whats real and what isn't. I'm not even sure why the IRS would remotely care about a business that made $3100 last year and in the red by about $3000. It was the absolute worse year I've had in the last three years. Well, at least it meant we've gotten quite the tax return this year.

 

[paradisi]

I searched on "louisiana business license renew" .. on duck duck go.

As you say, it doesn't make sense that they'd want to pull the plug on businesses as long as they are getting taxes from them.

Good luck getting it sorted. And on healing up.

 

[lucycat]

IRS or a state closing down a business is almost always for either failure to pay in state/local sales tax or failure to pay in employee withholding and social security taxes. In both cases, the business owner "collected" these funds from a sale of product or by the employee's withholding. They were never the business owner's legal funds. Both situations are considered serious non-compliance problems and result in serious consequences by tax agencies. Probably the most common I see in the papers are restaurants that don't pay in sales taxes even though the business owner charged and collected them from the customer.

The IRS cares about a business with a loss because one of the definitions of a business is to have a profit motive. If all I am doing is deducting costs of a hobby then the loss (costs) are not deductible. When starting a business it is expected that some losses may happen even with a profit motive. So, a loss doesn't automatically mean that the activity is a hobby but it is a consideration when there are losses in multiple years. The bigger the losses the more likely that there would be an audit to determine a business vrs a hobby. If you operate like a business, you probably are one.

 

[MelissaG]

IRS or a state closing down a business is almost always for either failure to pay in state/local sales tax or failure to pay in employee withholding and social security taxes. In both cases, the business owner "collected" these funds from a sale of product or by the employee's withholding. They were never the business owner's legal funds. Both situations are considered serious non-compliance problems and result in serious consequences by tax agencies. Probably the most common I see in the papers are restaurants that don't pay in sales taxes even though the business owner charged and collected them from the customer.

The IRS cares about a business with a loss because one of the definitions of a business is to have a profit motive. If all I am doing is deducting costs of a hobby then the loss (costs) are not deductible. When starting a business it is expected that some losses may happen even with a profit motive. So, a loss doesn't automatically mean that the activity is a hobby but it is a consideration when there are losses in multiple years. The bigger the losses the more likely that there would be an audit to determine a business vrs a hobby. If you operate like a business, you probably are one.

Now that's interesting. I've always paid taxes and I don't have any employees. Pretty much every penny I make goes back into the business with the exception of buying food when I'm at market because I need lunch and am hungry.

I do want to make a profit. It's just not always possible.

Thank you for the information, I appreciate it.

 

[melinda48]

I found this.. it sounds like not so much cancel like they're booting you, but cancel for being dormant? And one can then renew?

"How to Get a Business License in Louisiana | TRUiC
https://howtostartanllc.com/business-license/louisiana-business-license

Louisiana sales tax certificates are automatically renewed as long as your business is actively reporting sales. Otherwise, renewal must happen within 60 days of the certificate’s expiration date.
Contact the relevant government office for renewal requirements for other licenses your business may have."

Makes me wonder about my business. I now sell wholesale only to two businesses; one owned by our son and his family (it is a lavender farm and I make all of their soaps/body butters/linen sprays, etc.) and the other is a very small specialty conveniency store. I do not show any retail sales. Hmm… I hope Missouri does not decide I am not a business. I could always start selling more generally again but am so busy with the lavender farm products that I don’t want to take the time (and do not ever want to duplicate what I make for them to sell elsewhere).