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1. Your business starts when you start attempting to do business. In your case, since you made some sales last year, your business started last year. You should be filling schedule C for 2008 to report your income and expenses from your business, even though you never registered. Business registration is done with your state, but self employment income is a federal thing. There are many independent contractors who file taxes as self employed but don't have a business license. This is what you should do for 2008. The losses due to your start up cost will offset your regular income for 2008 but then they don't apply to 2009. Remember that there are special rules for inventory and also for depreciation of larger expenses. You may want to see a CPA or tax attorney for advice.. . 2. Normally yes, but since you started doing business in 2008, you should take your 2008 expenses in 2008 on schedule C.

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