Can I expense a prototype EV vehicle built from an older donor vehicle for my LLC?

[Anonymous]

I am a full time engineer with a large company but have been building a prototype EV built from a classic vehicle.  I have an LLC and this is just on the side to see if I could make an EV kit for classic vehicles as a business.  My taxes this year are very high due to some capital gains from real estate.  I have been documenting costs on the prototype build which includes a donor vehicle, donor EV parts from a wrecked tesla, as well as costs to rebuild the vehicle, etc likely totaling around 40k so far.  Is this something that I can add as a business expense to deduct against my income from my primary job or does it have to be carried forward until the LLC makes profit?

[RobertB4444]

You can start to take expenses in the year that your business begins to be in operation.  If you consider that to be 2023 then you can take expenses for that year.  Just make sure that you can demonstrate that your business was operational if you are asked to prove it.

If your business was not operational then all of these expenses will be bundled together and expensed in the year that you begin operating as a business.  They'll be called 'Start Up Costs' and they will be spread out over the first five years that you are operational.

You are not expected to make a profit immediately upon beginning to be operational.  Some businesses lose money for a year or two when they are first beginning.  But if you continue to lose money year after year then the IRS views your business as a hobby and will expect you to treat it that way.

@Anonymous 

[Anonymous]

Thanks for the clarification.  I have had the LLC since 2020 as I was considering doing some design consulting services but never did.  This is the first year I have really put time and money into this aspect of the business to develop EV kits for classic vehicles.  For this year I have over 40k in expenses (donor vehicle, ev batteries, fabrication supplies, materials, etc).  If this would be considered start up expenses I noticed it says a max deduction of 5k.  Is there a way to enter this as startup expenses in turbotax or should some of these expenses be classified differently?  From a chat w/the live assistant I was told to put them in as misc expenses for the business and I assumed turbotax would file it properly. The plan will be to highlight in some EV shows this year to take pre-orders and get an investor for a more production intent version but I wouldn't expect to really see any profits until 2025.

[RobertB4444]

Profits are not important.  Operating the business is.  In this case product development and product development expenses sound like you're operating a business to me.  If I wanted to come over right now and take a look at what you were working on as a potential customer down the line would you make a presentation for me?  If the answer is yes then your business is in operation and you should treat it as such.

Good luck in 2025!

@Anonymous