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So let's say that one spouse is working full time for simplicity let's say this spouse is making 100k/y and paying 30k/y in income tax. Then let's say the other spouse is running a sole proprietorship business that is operating as a retailer.

Let's say spouse two starts to buy supply and sell it at a loss up until 30k worth of supply in a year. Would the couple be able to fill as a married couple and deduct 30k from the income tax for the supply at the end of the year? Basically pocketing whatever money they did get from the sale even if it was sold at a loss?

If not why wouldn't this work and could this scheme be made to work?

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    Even if it works, you deduct the 30K from income, not taxes, so you'd pay taxes on 70K instead of 100K. – TTT Sep 14 at 16:34
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In your scenario, a 30k business loss (if allowed) would mean that you are now taxed on 70k of income instead of 100k. So, if you were taxed at 30% you would be losing 30k to save 9k in taxes.

The IRS is very aware of fraud potential with small business losses. If you are running a legitimate business (actually trying to make money) then you don't typically have much to worry about, if you are trying to manufacture losses to save money on taxes, then the IRS can disallow losses and impose penalties.

Selling things at a loss, intentionally, would not satisfy profit-motive requirements and therefore your business losses would be disallowed.

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