How long could they realistically leave it before it can't be a tax write-off?
I believe it is 3 years. I've run a couple of businesses of my own, but I've never made a loss at it.
OK, quick check of a tax site shows this:
A simple, general rule is that if the business makes a profit in 3 of 5 years there will be a presumption of profit motive. For horse-racing, it is 2 of 7 years. Don't you wonder what lawmaker owned horses?
For a company that does not meet the presumption of profit motive, the IRS takes a closer look.
There are nine factors in determining if a 'business loss' is not a 'hobby loss' and therefore nondeductible:
1.You carry on the activity in a business-like manner
2.The time and effort you put into the activity indicate you intend to make it profitable
3.You depend on income from the activity for your livelihood
4.Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business)
5.You change your methods of operation in an attempt to improve profitability
6.You, or your advisors, have the knowledge needed to carry on the activity as a successful business
7.You were successful in making a profit in similar activities in the past
8.The activity makes a profit in some years and the amount of profit it makes
9.You can expect to make a future profit from the appreciation of the assets used in the activity
So after 3 years the IRS looks at your "business" and judges it against the criteria above:
1.You carry on the activity in a business-like manner
Pffft! That's certainly debatable, but they're not worse than a lot of other businesses out there and probably better than others. However, the whole model looks more like a "hobby".
2.The time and effort you put into the activity indicate you intend to make it profitable
Good question. Is enough time being put in? Nobody answers their phones, so the answer is probably "No".
3.You depend on income from the activity for your livelihood
That's a "No". The furniture side must outperform it a million times over.
4.Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business)
So, apart from the inital startup (which has now passed), this means disasters, theft, etc. Not the inability to run the business due to ignorance or mismanagement.
5.You change your methods of operation in an attempt to improve profitability
The failed idea to rope in "business partners" might fall under this. The failure to implement it means "no". Perhaps the "watch this space" announcement might reveal a change in direction!
6.You, or your advisors, have the knowledge needed to carry on the activity as a successful business
The key word here is sucessful and relates to THIS business not any previous ones. Looks like a "no" to me.
7.You were successful in making a profit in similar activities in the past
Computer manufacturing and computer sales? That's a "no".
8.The activity makes a profit in some years and the amount of profit it makes
Another "no".
9.You can expect to make a future profit from the appreciation of the assets used in the activity
Unless the C64x becomes a collectors item worth a million dollars each, then those dusty cases on the shelf don't count. Call this one a "no".
So, I think they have 1 more year and then the IRS is going to start sniffing.
