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Does an LLC that is open but not made any income on a released digital product have to claim minor deductions on their 1065?

To clarify: We have to file the 1065 since we released a product that has not turned any revenue at this point. We are working on other products with high hopes:) Therefore, the question is: Since we have zero income for this year, can we file the 1065 and not claim the minor deductions to keep it easy? Or are we required to report the deductions since we are filing the 1065? (My understanding from the IRS article is that if deductions are greater than profit (basis), then you don't claim the deductions but rather claim them in future years you have profit). Please help.

Thanks:) 

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1 Reply
ThomasM125
Expert Alumni

Does an LLC that is open but not made any income on a released digital product have to claim minor deductions on their 1065?

You are supposed to report all expenses that are ordinary and necessary for a business in any year that it is open for business, meaning you are soliciting sales even if no sales have been made. So technically, you should report your operating expenses in 2023 even though you had no sales, as it sounds like you were open for business. The only way you could delay the reporting until 2024 is if you were not open for business during 2023, in which case the expenses would be added together and you would start deducting them as start-up expenses in the first year you were open for business. 

 

Since you would report a loss in 2023, you could deduct that loss on your personal tax return to the extent you had money invested (at risk) in the business, assuming you materially participated in the running of the business. Otherwise, they would be passive losses which would only be available to offset passive income in the current or future years.

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