Can I claim start-up expenses as a loss for my LLC that generated no revenue last year?

by Robert D. Hornick, CPA | Mar 05, 2019
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I live in New York and opened a single-member LLC last year. I didn't do any business with the LLC, so I have no revenue for the year. I have around $5,000 invested in the start-up with a software program, website design, and organization cost associated with filing for the LLC. Can I claim those expenses as a loss? I was employed full time with another job. 

Below are the federal tax rules regarding the start up of a business. Keep in mind that state and local tax regulations need to be considered. Consulting with a CPA is advisable due to the tax complexity of some of the issues involved.

Up to $5,000 in start-up costs can be written off in the year incurred. Start-up costs over $5,000 up to $50,000 are amortized over 180 months. From $50,000 to $55,000 in costs there is a phase-out of the $5,000 write-off, which then would be amortized over 180 months.

Start-up costs include, for example, cost of site selection, product research, marketing research, employee training, ordering supplies, and a general business conditions investigation. The costs of starting a business also include salaries, advertising, and research about the business. All the above costs are incurred prior to the realization of benefits (i.e., “open for business”). Software programs and website designs may fall under the start-up costs category.

Costs of the formation of an LLC are not considered start-up costs: they are organization costs. For tax purposes, similarly to start-up costs, $5,000 of organization costs can be written off in the year incurred (with similar amortization and phase-out rules).

Be aware that there may be elections that are required, and for those elections to be valid a timely tax return must be filed.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Robert D. Hornick, CPA, is with Hornick & Associates LLC in Philadelphia.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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