Lets say you make $200k from a prop firm and get a K1. You also start a business (form an LLC) that for the year you produce a loss, say $20,000 from all the start up expenses, fees, legal crap, and just the general B.S. that comes w/ starting a business Can you deduct this $20,000? ----> not sure if this matter, but the business "should" turn a profit next year
better not start any business if your budget is very limited. Personally i would spend those $20K (if my budget isn't far off, like let's say $30K - $40K) in internet marketing business.
If you're managing your business on a cash basis, then your start-up costs should be deductible against other income (excluding costs for depreciable/amortizable assets). What the IRS will do is monitor your business P/L over time to evaluate if it was a legitamate attempt at business, a hobby, or whatever. Obviously having profits in future years makes the case that it's a legitamate business.