New LLC and Startup Costs

[RJO]

I started a new single member LLC in 2019:  legal doc filing of 2/25/19; startup costs, primarily for website development and procurement of samples, brochures, displays thru the end of March (lots of different dates); and I made my website public on/around 4/1/2019.

Are my startup costs determined by the date I filed and received my state & federal documents (2/25/19), or are they all costs incurred up to when my website went public?  I know I can only deduct $5k this year and will amortize the balance over the next 15 years.  

Thx for the help.

[LudwigVan_fan]

Per Publication 535 from the IRS, on page 29:

A start-up cost is amortizable if it meets both of the following tests.
• It is a cost you could deduct if you paid or
incurred it to operate an existing active
trade or business (in the same field as the
one you entered into).
• It is a cost you pay or incur before the day
your active trade or business begins.

For further reading and information, here is a link to Pub 535

https://www.irs.gov/pub/irs-pdf/p535.pdf

If your business is through your website, I would say your startup costs are up to the day your website went public.  Similarly as to a retail or other business...when do you actually become a trade or business with the public?   Generally, when you open your doors to/for the public.  

I strongly suggest reading Pub 535 information, and it may have links to other information you want/need as well.

Good luck!

[Carl]

Are my startup costs determined by the date I filed and received my state & federal documents (2/25/19), or are they all costs incurred up to when my website went public?

Neither. Startup costs are those costs incurred before you were "officially open for business". That "Open" date is determined by you. It's perfectly possible for you to have been open for business on 1/1/2019 which has nothing what-so-ever to do with your document dates or website publishing date. But do check for dates in your state and fed documents. If those documents give an "effective date" then I would recommend you establish your "open" date on or after the effective date in any of those state or fed documents.

I know I can only deduct $5k this year and will amortize the balance over the next 15 years.

It's only worth it to you to claim the full $5K in that first year, if you actually have $5K of taxable business income after all other business deductions are taken. SO keep that in mind.

[RJO]

Thanks for the quick response.  Follow-up question:  I have a very small, very local, very niche "passion" (more than a hobby) business.  Startup costs were over $5k, but 2019 gross revenue was $3900.  Are you saying I can only write off $3900 in startup costs, even though my startup costs exceeded $5k?

[RJO]

Hi again...another question about amortizing the startup costs.  I found this section on page 30 (chapter 😎 of IRS Pub 535:  

"You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins.:

Not sure how this statement affects the $5k limit on writing off startup costs...any insight?. Would I just move my startup costs to a Supplies or Misc Expenses category instead of a Startup category?  

[AmeliesUncle]

1)  No,  you can enter the full amount of Startup Costs even though your income was only $3900.

2)  Don't enter it under supplies, enter it under Startup Costs.  That statement means that the 'default' rule is to amortize it over 15 years.  But you have the option to make the election to use up to $5000 in the first year you are open.  When you enter the full amount in the Startup Cost section of the program, the program will ask you a few questions and automatically apply the $5000 and then amortize the rest.

[RJO]

Thanks very much...very helpful answer.  I think I’m good to go now.

stay safe and well...