Bankruptcy applies to people such as sole traders and those that have given personal guarantees for loans. Winding up and liquidation apply to companies.
As a director of a business in trouble, it is up to you to decide whether your business should continue trading or cease trading. If you do not, you may end up having to pay for the company's losses from your own pocket while being investigated by the DTI.
Assess the daily and weekly cash flow of the business and keep an eye on the finances.
Record or note down minutes from meetings about financial issues.
Review any decision to continue trading periodically.
Get help if financial issues swamp the day to day trading of the business.
If the net profit figure on your Schedule C is a negative number, you have a business loss. The vast majority of freelancers incur losses. This is how losses work.
Protect business to lose
First, your business loss reduces your total income. On Form 1040, your total income is calculated on Line 22. The loss also reduces your Adjusted Gross Income (Line 36), and Taxable Income (Line 42). As such, your business loss reduces your income tax. If you have a day job (on a W-2), this means you will get a bigger refund compared to someone who earned the same amount of wages but did not have a freelance gig side business.
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