Question

LLC expenses greater than income, how do I carry over any expenses to the next year?

Forum|Forum|4 years ago
March 29, 2022
1 reply
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I started an LLC 8/5/21, and have only been incurring expenses so far. All my purchases have been after the 8/5/21 date. I have spent for example $10k and made $0 as income. When I type in these numbers it obviously doesn't show the IRS is paying me money back, it shows $0 on my refund. However if I made profit this year, lets say $10k, it would still show $0.

So I don't know how to report this; I heard you can carry over expenses to offset future profits? Do I hold off on reporting these 2021 expenses? I wouldn't want to input them this year, as they aren't getting me any tax deductions.

AliciaP1

You should not report anything for 2021. The expenses you pay before you earn any income should be lumped together into an intangible asset, Start-Up Costs. The first year you receive income you can elect to take a $5,000 deduction then will amortize the remaining amount over 180 months.

Per the IRS:
Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation or partnership.

See Business Start-up and Organizational Costs in Publication 535 for more information.

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Carl11_2

Employee

The expenses you pay before you earn any income should be lumped together into an intangible asset, Start-Up Costs.

That's not "quite" accurate. Expenses incurred before your business is officially "Open for Business" are start-up expenses. Start up expenses are claimed in the first year the business is actually open for business. It does not matter in what tax year those start up expenses were incurred either.The amount you can actually claim/deduct in that first year is limited to $5,000 and can be further limited depending on the business income that first year. The remaining expenses are amortized and deducted over time; 15 years if I recall correctly.

For more information I suggest you see https://www.irs.gov/newsroom/heres-how-businesses-can-deduct-startup-costs-from-their-federal-taxes and follow any applicable links from there.