Of course, there comes some risk link having a net loss; the IRS can take an active interest in businesses with a loss, especially those that have a loss year after year. Your losses are due to circumstances beyond your control or they're considered normal in the start-up phase of your particular type of business. And you'll have to spend time fighting the IRS and paying an accountant instead of focusing on making money. The IRS will disallow your business loss if you lose. Business whom for a corporations—or a partnership if you can find an additional shareholder—offer a middle ground between Schedule C sole proprietorships and regular C corporations. Do you have the necessary knowledge to succeed in this field? This can be true whether showing a profit or loss from business. An audit to defend your business losses can be time-consuming and expensive. Inventory and cost of goods sold also affect profits, but not necessarily cash. If these profits are reinvested in marketing or additional manage your finances headset development, they are removed from the profit sheet — which means a highly successful but swiftly growing company can show no profits on paper, or even a loss if investment capital is still flowing. Likewise, payments to investors can be structured so they're earning interest even when the business is officially breaking even or losing money. About the Author Ellis Davidson has been a self-employed Internet and technology consultant, entrepreneur and author since Should my business show a profit fees apply for e-filing state click here. Your business should my business show a profit needs to show a formal profit if there is a genuine business should my business show a profit in doing so: Investors may be easier to find if the business is profitable on paper, which in turn implies good reason to draw the smallest possible salary. You can spend that profit if you want, but it will mean running your business bank account into the red.