Originally Posted by
cjsracing
If you are set up as a Single Member LLC, in other words you are the only owner, the IRS treats your business as a disregarded entity and you put your income/expenses on form 1040 Schedule C. Claiming losses year after year on a Schedule C is a big red flag.
What you could do is setup a LLC Partnership or an S-Corp. By doing this the Business Files it's own tax return either a Form 1165 or Form 1120S. Each partner gets a K-1 that shows the partners share of the profit/loss in the Company. This information then gets entered on your personal Form 1040. This is less likely to be a red flag, plus if the IRS inquires about your personal taxes the K-1 is your proof. Most of the time if the IRS inquires of your personal taxes and you show them the K-1 they will be satisfied. If you don't have a K-1 and file with a Schedule C all your income/expenses are right there for them to look at and they will. Also, you should try to run it as a Business, by this I mean get a Federal ID #, separate bank accounts, issue 1099's if you pay someone more than $600 for services, etc.