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cerati50
New Member

I am a Dr who setup my SCorp in TX in 2018. There were startup costs incl. lawyer, credentialing, miles, but NO income yet. How to answer "Was SCorp open for business?"

I am in the process of opening my prviate practice. I set up a professional association (P.A.) in Texas that received S-Corp status in late 2018, but haven't started seeing patients (generating any income) yet bc still in process of getting credentialed with insurances. (S-Corp election does start on same date as incorporation, according to my tax document).

1) When should I consider myself "open for business?"

2) If answer is "not open for business yet," can I still deduct above-listed expenses (attorney, filing fees, credentialing, mileage toward getting contracts) for 2018? I did have income through an employed position that was unrelated to my S-Corp. 

1 Best answer

Accepted Solutions
Rick19744
Level 11

I am a Dr who setup my SCorp in TX in 2018. There were startup costs incl. lawyer, credentialing, miles, but NO income yet. How to answer "Was SCorp open for business?"

Responses to your questions:

  1. Based on your facts, it does not appear that you have begun your trade or business.  As such, there will be no current year expenses to report.
  2. While you have not begun business, as an S corp, you will still be required to file a Form 1120S.  The items you mention in your facts are a combination of Section 195 costs (start-up costs) and Section 248 costs (organizational costs).  These are capitalized and then amortized over 15 years.  Some of these can be expensed in the year the business begins as explained in this link https://www.thebalancesmb.com/how-to-deduct-startup-costs-on-business-taxes-397608
  3. The start-up costs and organizational costs will be reflected on your balance sheet along with any other equipment you may have acquired.  Any depreciation on equipment will also not begin until you begin your business.
  4. Texas has a franchise tax return and you should look into the reporting requirements.  While you may not have any income, you may still owe Texas a franchise tax fee.  This is because franchise taxes are for the privilege of doing business in a particular state.
  5. There can be some traps for the unwary here, so I would recommend that you consult with a tax professional to make sure you get this set up correctly and understand how S corps work.  Not an area to be penny wise and pound foolish.
  6. The other income, not related to the S corp as you indicate, will be reported as usual on your 1040.
  7. There are many factors that could come into play in determining when a business begins, but based on your limited facts, I would assume it is once you have opened your doors for patients.

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

2 Replies
Rick19744
Level 11

I am a Dr who setup my SCorp in TX in 2018. There were startup costs incl. lawyer, credentialing, miles, but NO income yet. How to answer "Was SCorp open for business?"

Responses to your questions:

  1. Based on your facts, it does not appear that you have begun your trade or business.  As such, there will be no current year expenses to report.
  2. While you have not begun business, as an S corp, you will still be required to file a Form 1120S.  The items you mention in your facts are a combination of Section 195 costs (start-up costs) and Section 248 costs (organizational costs).  These are capitalized and then amortized over 15 years.  Some of these can be expensed in the year the business begins as explained in this link https://www.thebalancesmb.com/how-to-deduct-startup-costs-on-business-taxes-397608
  3. The start-up costs and organizational costs will be reflected on your balance sheet along with any other equipment you may have acquired.  Any depreciation on equipment will also not begin until you begin your business.
  4. Texas has a franchise tax return and you should look into the reporting requirements.  While you may not have any income, you may still owe Texas a franchise tax fee.  This is because franchise taxes are for the privilege of doing business in a particular state.
  5. There can be some traps for the unwary here, so I would recommend that you consult with a tax professional to make sure you get this set up correctly and understand how S corps work.  Not an area to be penny wise and pound foolish.
  6. The other income, not related to the S corp as you indicate, will be reported as usual on your 1040.
  7. There are many factors that could come into play in determining when a business begins, but based on your limited facts, I would assume it is once you have opened your doors for patients.

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

svex
New Member

I am a Dr who setup my SCorp in TX in 2018. There were startup costs incl. lawyer, credentialing, miles, but NO income yet. How to answer "Was SCorp open for business?"

Thank you @Rick19744 !
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