Start-Up Costs

[natalie07172]

I will be making and selling products at that end of the year. Because of the nature of the products, I will be creating an LLC.

1. I have been purchasing components as they have gone on sale for the last few years, knowing I would be starting this company. These items would form part of the COGS.

   -Since the company hasn't started yet, would I be able to write them off this year as start-up costs, COGS or nothing, because they were purchased prior to creating the LLC?

2. I also have spent money on logo designs and purchased specialty software for designing the products.

- Since the company hasn't started yet, would I be able to write them off this year as start-up costs or nothing, because they were purchased prior to creating the LLC?

3. Overall, what defines the business start date? Does it have to be the date of the formation of the LLC, or when I started tasks/planning for the business?

4. Do start-up costs have to the filing year prior to starting the business? Or can they be the first part of the year of the business formation.

[Michele Catlett · Accepted solution]

1.  If the items in question genuinely are part of the cost of the items you will be selling they should be Inventory until sold when they become COGS.

2. Logo design and special design software purchased before you begin making sales should qualify as start up costs.  (see resource below)

3. The date you form the entity is often not the date it "begins" operations.  The IRS considers the "month the business begins to operate active trade or as a business" as when operations begin.

4.  Start up costs can and are often utilized in the first year of business.  

Here is a well written article published in Tax Adviser https://www.thetaxadviser.com/issues/2017/sep/deducting-startup-expansion-costs.html