LLC

[mgrivois]

I have a question regarding tax write-offs. I will be starting a LLC soon (chartering business). I purchased the necessary equipment (off-shore fishing boat, etc...) last month. Now my questions are the following: 

1) Can I write-off the cost of the boat when I file my taxes in April 2020? 

2) Should I create the LLC NOW or should I wait and create it in March? Is there a "better" time to maximize tax returns?

I would appreciate your feedback.

Thanks, Marina 

[Anonymous_]

The boat is a fixed asset; you cannot begin deprecation deductions (or expensing) until such time as the boat is placed in service, which would generally be the date your business begins operations (in this case that would appear to be in 2020).

Your LLC will most likely adopt a calendar year as an accounting period for federal income tax purposes so you might be better off waiting until next year (2020).

Regardless, you should absolutely seek professional tax and legal guidance if you are not familiar with the law and accounting practices with respect to starting and operating an LLC.

[Anonymous]

an llC is only for liability protection,  being a single member LLC will have no effect on your taxes.     

having a business plan is important they contain the steps you'll take to make it profitable.   many startup businesses lose money the first couple of years until they can build up their client base.   take too long and if audited, the IRS  could argue you are engaged in  hobby and disallow any net losses. 

if you know little or nothing about boat chartering, get advice.   certainly there may be state or local licensing requirements,  can't say if your boat will need to undergo coast guard inspection,  if you have crew, you may have payroll tax filing requirements.

you may want to read this

https://www.allatsea.net/chartering-your-boat-for-fun-and-profit/

[Carl]

1) Can I write-off the cost of the boat when I file my taxes in April 2020?

No. Not directly. When self-employed, items used to "generate income" on a recurring basis are referred to as business assets. What you pay for those assets (such as the boat) are not deductible. Not ever. You have to depreciate that asset over time. Now for a boat used in the charter business to produce income, that would be depreciated over 10 years.

2) Should I create the LLC NOW or should I wait and create it in March? Is there a "better" time to maximize tax returns?

If possible, wait until the tax year you will actually be "open for business" before you create the LLC. Business entities are created and registered at the state level. So if your state considers your business to be "active" in the year you register it, you may be "required" to file a tax return for it, even if said business was not actually "open for business" and did not produce any income. With your current plan to actually start the business in March, you'd be better off waiting until after the first of the year to start setting it up.

Now one thing I note is that you are not asking the really "important" questions on this. I figure either you know already, or you're flying blind at this point. If flying blind, then you're absolutely positively doing it right by asking "BEFORE" you start doling out money to get this going. To many times I've seen folks not start the learning process until "after" their first year of business at tax filing time, only to discover they've done so much wrong that results in fines and penalties that bankrupt the business before they even get it off the ground. So let me offer you some advice and information to help you find the "right track" for your endeavor.

First, make sure that "YOU" and "ONLY YOU" are the "ONLY LISTED OWNER" of the business. If you have more than one owner (such as your spouse) then you don't have a sole proprietorship or single member LLC. You have a partnership/multi-member LLC and dealing with the taxes for that ***IS*** complicated when compared to what you're probably used to.

Go right now and purchase the CD/Desktop version of TurboTax 2018 at https://turbotax.intuit.com/personal-taxes/past-years-products/ and install it on your computer.  While any of the desktop versions of the program will have the SCH C in it that you need, the Home & Business version offers the most "in program help" for you. I suspect you're going to need it to.

Then you are going to "pretend" you started your business in march of 2018 and you're filing your 2018 tax return.

I do not recommend the online version of TurboTax for "at least" your first year starting this business. When you're not accustomed to how online works for your specific situation (new first time business owner) you will discover the online version is *NOT* user friendly "at all". I don't care what others tell you. If you try doing your first ever SCH C using the online version, you can fully expect to get frustrated to the point of giving up and paying a tax professional to just do your taxes for you.

With the desktop version, navigation is significantly easier and simpler, and unlike the online version, the desktop version has "forms mode" which is *extremely* useful when trying to figure out an issue and you need to "follow the math". You just can't do that with the online version.

So install the desktop version (Deluxe or higher) on your computer and start a 2018 tax return "as if" you've been in the charter business since march of 2018. Then as the questions arise, ask away and we'll be more than happy to answer and help you. Better you do this "now" instead of waiting for the 2019 tax season to start. We'll be extremely busy answering 2019 questions then and you would probably find yourself waiting more than a day for an answer to a simple question.