LLC Filing for First Year with Zero Sales?

[sdcheeks]

I created an LLC in mid 2020 but had zero sales for the year due to Covid.  Do I still need to file an 8832 or a 2553?  If so, how do I do that?  I am the sole owner of the LLC, so can I just file a zero on the Schedule C for this LLC business?

[Rick19744 · Accepted solution]

By creating an LLC with only one individual (you), you have created what the IRS calls a single member LLC.

By default, for tax purposes, this entity is considered "disregarded" and is treated as any other sole proprietorship; you file a Schedule C.

The only reason to file a form 8832 is if you want to treat your LLC differently than the default.

The only reason to file a form 2553 is if you want to be treated as an S corporation.  However, to do this, you would also need to file the form 8832 to treat your LLC as an association.

There are numerous pros and cons in determining what type of entity structure is best and a forum such as this is not really optimal in trying to determine the best entity structure.

But bottom line, if you are only wanting to be treated as a sole proprietor, then you do not need to do anything else.  Additionally, being a sole proprietor and having no sales, means you can just not file your Schedule C for 2020 since you had no activity.

Having said that, you indicate you had no sales.  Does that also mean you had no expenses?  Did you actually begin your trade or business in 2020 and just didn't generate any sales?

The response to these questions will also impact whether you need or should file a Schedule C.

[sdcheeks]

Thanks for the quick response!  I appreciate your help!

[Irene2805]

Even though you had no income you can still prepare a Schedule C for your business (if you are a sole proprietor).  You can deduct any startup costs and regular business expenses you may have incurred (even if there is no income).  Startup costs can only be deducted in the year they were paid (for a cash basis business).

In order to report expenses, you will need to use TurboTax Self-Employed (online) or one of the TurboTax CD/Download products.

You can deduct up to $5,000 of startup costs as a current business expense.  The remainder is amortized over 180 months.

Start-up costs include:

• Survey of potential markets
• Advertising the opening of the business
• Consulting or other professional fees paid in connection with starting the business.
• Wages to employees being trained for the new business
• Analysis of possible facilities, labor force, supplies, etc.
• Travel and related expenses to secure distributors, suppliers and customers.

You can enter your startup expenses using the steps listed below:

TurboTax Online

1. Click on Income and Expenses and then click the Start/Revisit box in the Self-Employment section.
2. On the Your 2020 self-employed work summary screen, click on Edit next to your business.  
3. On the Here's your [business] info screen, click on the box Add expenses for this work.  
4. On the Tell us about any expenses screen, click the radio button next to the most appropriate category for this payment -- Commissions, Contract Labor, etc. 
5. After making your selection(s), click Continue when done.  TurboTax will walk you through the data entry.

Once you have finished entering your startup costs you will be brought back to the Here's your [business] info screen.  Click the box Add expenses for this work, so to enter other expense categories.

NOTE:  If you don't see Startup costs in the list of Business Expenses you need to indicate that the business was started or acquired in 2016.  Please follow these steps:

1. Click the Edit box next to General Info
2. Click Edit next to General Info (On the again).
3. On the Tell us about how long you've worked in [XX] mark the box I started [business name] in 2019 and enter the date you started or acquired this business.
4. Click Continue and then Looks Good to get back to the Here's your [business] info screen.

TurboTax CD/Download

1. Click on the Business tab > Continue > I'll choose what to work on
2. On the Let’s gather your business info screen, in the Business Income and Expenses section, click the Start/Update button.
3. If you have already started adding information about your business, you will see the Here's the business info we have so far screen.  Click on the Edit box next to the business. 
4. If you haven't already started adding business information, continue through the screens to enter the needed information.
5. You will now be on the Your [XX] Business screen.  In the Business Expenses section, click on the Start/Update box next to Startup Costs. 
6. When you are finished entering startup costs, you will be brought back to the Your [business type] Business screen.   From here you can enter other business items (income, expenses, assets, inventory, etc.).

NOTE:  If you don't see Startup costs in the list of Business Expenses you need to indicate that the business was started or acquired in 2020.  Please follow these steps:

1. Click the Start/Update box next to Business Profile.
2. Click Edit next to Acquired Business in Current Year.
3. Mark the box I started (or acquired) my business in 2020 and enter the date you started or acquired this business.
4. Click Continue and then Continue again to get back to the Your [XX] Business screen.