I live in California, am employed full time by a company, and collect
a full time salary.
Last year, I attempted starting a small internet business as a sole
proprietor, spent some money (about $10,000) trying to get off the
ground, but did not make any sales and had to shut down.
Can I claim any deductions on my tax returns for the expenses involved
in starting the business, even though I only earned income from my day
job?

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Request for Question Clarification by denco-ga on 28 Jan 2005 20:35 PST

Howdy pindown-ga,

Did you run the internet business from your home, or did you have a
separate office space for it?  Thanks!

Looking Forward, denco-ga - Google Answers Researcher

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Clarification of Question by pindown-ga on 29 Jan 2005 15:24 PST

denco-ga:

Ran it from home. Let me know if you have any other questions. Thanks!

Yes you can.  You need to file Schedule C with your Form 1040.  If you
are claiming business use of your home, you also need to file Form
8829.  The rules for claiming business use of your home are quite
strict, so read the instructions carefully to ensure that you qualify
before claiming business use of your home.

"Schedule C" Internal Revenue Service (2004)
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

"Form 8829" Internal Revenue Service (2004)
http://www.irs.gov/pub/irs-pdf/f8829.pdf

Sincerely,

Wonko

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Request for Answer Clarification by pindown-ga on 03 Feb 2005 20:35 PST

Wonko-ga: thank you for your answer. Please can you provide a
reference that confirms the "yes" response?

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Clarification of Answer by wonko-ga on 04 Feb 2005 10:16 PST

I will try to find a reference, but I found myself in exactly the same
situation a few years ago and did precisely what I am recommending to
you at the advice of my accountant.  I have never had any problems
with the IRS as a result.

Sincerely,

Wonko

Accurate answer, and quick response. Would have appreciated a reference though.