How to handle a legitimate business that only operated for 1 year

[slyeddie]

My wife started a photography business last year (January, 2022). We did all the real/official things: bought insurance, created a single manager LLC for her, built a website, seperate business bank account with Quickbooks and Venmo, etc.

She did fine, and ignoring startup costs, would show a small profit. The problem is that for multiple legitimate reasons, she does not wish to continue the business. There were some monthly expenses for things like Pixieset and Adobe, annual LLC filings, Dropbox, etc. But, the large expenses were a MacBook Pro and a Canon professional DSLR with two very nice lenses. So I think the approximate total expenses at the outset were about $9,500 (two of the items are under the $2500 limit for section 179 - see below). Obviously, if she were continuing the business we wouldn't be worried and could deduct/depreciate things, etc.

She's asking me about a Section 179 deduction. If she does the full 179 deduction she would show a loss. At this point, what can we safely deduct and what is the best way to proceed? (Illinois residents)

[AliciaP1 · Accepted solution]

If she stopped operating in 2022 or If she will be discontinuing the business in 2023, she can report the Section 179 deductions in 2022, but will have to recapture most of the amount (which means essentially eliminate the deduction) don to allowable depreciation when she converts the assets personal use or sells them with the closing of the business.  I would suggest just adding the asset and depreciating the amount based on the appropriate depreciable life and not take the Section 179 deduction at all in 2022.  This will smooth out the effect of operating the business for a short time. 

[slyeddie]

Thanks! That's a perfect answer. She has no 2023 income (because things are pretty dead for outdoor photography in Illinois January-March), but had 3 months of expenses (small stuff like website and Adobe, Quickbooks, etc.). Will we still be able to safely deduct those expenses on our 2023 return?

[MarilynG1]

Yes, you can still deduct Business Expenses incurred in 2022.

@slyeddie 

[slyeddie]

I was asking about 2023 (Jan—Mar) expenses.

[SharonD007]

She would deduct business expenses incurred from Jan. - March 2023, on her 2023 income tax return next year.