Business failed in less than a year. How do i deduct startup costs?

[drewmc1985]

I started a Sole Proprietorship LLC in 2018 with roughly $13,000 in start up costs.  The business was a failure with only one sale, so I had to shut the business down in the same year, 2018.  How can I deduct all of my startup costs in the same year my business started?

[IreneS]

I'm sorry to hear about your business.

You can deduct any startup costs and regular business expenses you may have incurred (even if there is no income).  Startup costs can only be deducted in the year you start business (after you open your doors).

In order to report expenses, you will need to use TurboTax Self-Employed (online) or one of the TurboTax CD/Download products.

Before you enter your startup costs, make sure that you have entered that the business started and ended in 2018.

1. Click Income and Expenses and then click the Start/Revisit box in the Self-Employment section.
2. On the Your 2018 self-employed work summary screen, click on Edit next to your business.  
3. Click the Edit box next to General Info
4. In the General Info section, check that Started work in 2018 and Stopped work in 2018 both say Yes.  If not, click Edit and make the changes.
   
5. Click Continue and then Looks Good to get back to the Here's your [business] info screen.

You can enter your startup expenses using these steps:

1. On the Here's your [business] info screen, click on the box Add expenses for this work.  
2. On the Tell us about any expenses screen, click the radio button next to Start-Up Costs.
   
3. Click Continue when done.  TurboTax will walk you through the data entry.

Once you have finished entering your startup costs you will be brought back to the Here's your [business] info screen.  Click the box Add expenses for this work, so to enter other expense categories.

You can deduct up to $5,000 of startup costs as a current business expense.  The remainder is amortized over 180 months.

Start-up costs include:

• Survey of potential markets
• Advertising the opening of the business
• Consulting or other professional fees paid in connection with starting the business.
• Wages to employees being trained for the new business
• Analysis of possible facilities, labor force, supplies, etc.
• Travel and related expenses to secure distributors, suppliers and customers.

[Edited | 3/25/2019 | 11:43 am PDT]

[drewmc1985]

Thank you for the prompt response.  I do have one question though.  Do i still have to amortize the start up costs above $5,000 over 180 months if the business is no longer in operation?

[drewmc1985]

The business itself was a Classifieds website that was professionally built and this is where the majority of costs were incurred.  How would I classify this purchase since this is not an asset that can be sold and is not necessarily a start up cost per say?

[IreneS]

Yes you have to amortize the start-up costs above $5,000.  However, the balance will be entered as an asset.  You can go into the asset section and record that it was sold and that the sales price was zero.

Add the expense of setting up the website to your start-up costs.  Anything else can be entered as an expense.

[drewmc1985]

Can you please clarify this statement?

"Startup costs can only be deducted in the year they were paid (for a cash basis business)."

I had some costs that were incurred in 2017 since I didn't actually start the business until January 2018.  From what I read, you deduct them in the year the business started, which in my case was 2018.  How do I treat these costs?  

Also, which Turbo Tax product or offering would be best to use in my situation.  I've never used it before.

[IreneS]

Sorry for the confusion - I edited my answer:  Startup costs can only be deducted in the year you start business (after you open your doors).  So you can include the expenses incurred in 2017.

You should use TurboTax Self-Employed [Online] or TurboTax Home & Business [CD/Download], since you have expenses to report with the business.

[drewmc1985]

Thank you.  Will both options handle the the Pennsylvania return also?

[IreneS]

Yes.

[drewmc1985]

I apologize for all the questions, but what is the difference between the two?

[IreneS]

Questions are not a problem.  You mean the 2 versions of TurboTax?  

**TurboTax Self-Employed is done online on the website: <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/">https://turbotax.intuit.com/</a>  

**TurboTax Home & Business is a program downloaded onto your computer.  With this version you can prepare and e-file 5 tax returns (in case you want to do returns also for your family members).  The tax file is stored on your computer.  You can purchase/download it by going to:  <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/personal-taxes/cd-download/">https://turbotax.intuit.com/personal-taxes/...