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lalu_rad2
New Member

Formed LLC in 2017.Open in 2018. I have equipment, inventory and supplies that I purchased in 2017. What tax year do I report these items for deductions/depreciation?

I would prefer 2018. How to?

1 Best answer

Accepted Solutions
DS30
New Member

Formed LLC in 2017.Open in 2018. I have equipment, inventory and supplies that I purchased in 2017. What tax year do I report these items for deductions/depreciation?

It depends -

If the LLC was formed but not opened for business until 2018, then you will have no 2017 tax filing requirements related to your LLC.

However, if the LLC was actually opened for business in 2017 but had no sales until 2018, you will still need to file a 2017 income tax return related to your LLC.

Until that point when you actually start operation, you will just have start-up/organization cost (this would include any franchisee fee) and you will not be able to claim any expenses related to start-up until your business begins operations.

You may elect to deduct up to $5,000 of start-up costs in the year your business begins operations. The $5,000 first-year deduction limit is reduced by the amount of start-up costs exceeding $50,000. (You would include this as under business income and expenses - "Other Common Business Expenses"> "Other Miscellaneous Expenses" and enter here (as start-up costs). 

Start-up costs that exceed the first-year limit of $5,000 may be amortized ratably over 15 years. The amortization period starts with the month you begin operating your active trade or business. (Include any remaining start-up cost under the asset section of business income and expenses.)

Start-up costs include amounts paid for the following:

  • An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
  • Advertisements for the opening of the business.
  • Salaries and wages for employees who are being trained and their instructors.
  • Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
  • Salaries and fees for executives and consultants, or for similar professional services.

For example, you began business operations July 1, 2017, had start-up costs of $35,000.

You may deduct $6,000 in 2017 (First-year limit, $5,000, plus First year's amortization, $1,000).

A full year's amortization would be $2,000 ($35,000 minus $5,000 divided by 15). Since  the amortization period began July 1, 2017 (the month business operations began), the first year's amortization is one half of $2,000 or $1,000.

For the amount of business expenses after you started your business -

You will be able to expense any eligible business costs incurred after you started your business.

Please refer to this IRS link for more information about Business Expenses


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1 Reply
DS30
New Member

Formed LLC in 2017.Open in 2018. I have equipment, inventory and supplies that I purchased in 2017. What tax year do I report these items for deductions/depreciation?

It depends -

If the LLC was formed but not opened for business until 2018, then you will have no 2017 tax filing requirements related to your LLC.

However, if the LLC was actually opened for business in 2017 but had no sales until 2018, you will still need to file a 2017 income tax return related to your LLC.

Until that point when you actually start operation, you will just have start-up/organization cost (this would include any franchisee fee) and you will not be able to claim any expenses related to start-up until your business begins operations.

You may elect to deduct up to $5,000 of start-up costs in the year your business begins operations. The $5,000 first-year deduction limit is reduced by the amount of start-up costs exceeding $50,000. (You would include this as under business income and expenses - "Other Common Business Expenses"> "Other Miscellaneous Expenses" and enter here (as start-up costs). 

Start-up costs that exceed the first-year limit of $5,000 may be amortized ratably over 15 years. The amortization period starts with the month you begin operating your active trade or business. (Include any remaining start-up cost under the asset section of business income and expenses.)

Start-up costs include amounts paid for the following:

  • An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
  • Advertisements for the opening of the business.
  • Salaries and wages for employees who are being trained and their instructors.
  • Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
  • Salaries and fees for executives and consultants, or for similar professional services.

For example, you began business operations July 1, 2017, had start-up costs of $35,000.

You may deduct $6,000 in 2017 (First-year limit, $5,000, plus First year's amortization, $1,000).

A full year's amortization would be $2,000 ($35,000 minus $5,000 divided by 15). Since  the amortization period began July 1, 2017 (the month business operations began), the first year's amortization is one half of $2,000 or $1,000.

For the amount of business expenses after you started your business -

You will be able to expense any eligible business costs incurred after you started your business.

Please refer to this IRS link for more information about Business Expenses


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