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Should an LLC file a tax form if it is not yet open for business?

This concerns a multimember LLC in New York State that is treated as a partnership. The LLC was formed in 2016 but is not yet open for business. It will not begin business until some future year. It has incurred start-up expenses, organizational expenses, and capital expenditures to buy tangible assets. According to IRS Pub. 535, all these expenses may be deducted, amortized, or depreciated (as appropriate) starting in the first year when business begins. Pub. 535 does not mention filing such expenses before the first year when business begins. Therefore, am I right that the LLC does not need to file Form 1065 or any other tax form until it begins business? And when it does begin business, the LLC may then deduct or begin amortizing or depreciating such expenses for all prior years?




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DS30
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Should an LLC file a tax form if it is not yet open for business?

Yes, you are correct. You will have no federal or state income tax return filings (Form 1065 for a multi-member LLC)related to your LLC until you actually are "open for business".

For the amount of start-up costs before you started your business -

You may elect to deduct up to $5,000 of start-up costs in the year your business begins operations. The $5,000 first-year deduction limit is reduced by the amount of start-up costs exceeding $50,000. (You would include this as under business income and expenses - "Other Common Business Expenses"> "Other Miscellaneous Expenses" and enter here (as start-up costs). 

Start-up costs that exceed the first-year limit of $5,000 may be amortized ratably over 15 years. The amortization period starts with the month you begin operating your active trade or business. (Include any remaining start-up cost under the asset section of business income and expenses.)

Start-up costs include amounts paid for the following:

  • An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
  • Advertisements for the opening of the business.
  • Salaries and wages for employees who are being trained and their instructors.
  • Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
  • Salaries and fees for executives and consultants, or for similar professional services.

For example, you began business operations July 1, 2016, had start-up costs of $35,000.

You may deduct $6,000 in 2016 (First-year limit, $5,000, plus First year's amortization, $1,000).

A full year's amortization would be $2,000 ($35,000 minus $5,000 divided by 15). Since  the amortization period began July 1, 2015 (the month business operations began), the first year's amortization is one half of $2,000 or $1,000.

For the amount of business expenses after you started your business -

You will be able to expense any eligible business costs incurred after you started your business.

Please refer to this IRS link for more information about Business Expenses.

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