TurboTax Business Multiple Questions (Receiprts, Income, Business Codes)

[sasho1987]

Good evening everyone,

This is my first time using TurboTax business and I have a few questions that I came across (btw its TurboTax desktop version):

1-   I have an e-Commerce business and the section that it asks for Business Activity code was a bit confusing. The best I found was  454100 (Electronic Shopping) but I am not sure if there is something better?

2- I just started the business last year and I do not have any income in 2022 but looking at the Income section I only see Rental Real Estate Income, Investment Income, Other Income. If I had income in 2022 in what section would I put that in because none of those would match the income from a e-commerce product selling company.

3-  In the deductions sections, I put all of my expenses in 2022 and assets that would depreciate (e.g. laptop) but there is no place upload receipts or anything like that. Do I not need to do that? Just save the receipts for my records?

4- On the Texas Franchise Tax Information Worksheet  there was 3 lines where I had to select YES or NO. One of them said the following and I am a bit confused. Can someone elaborate on this?

          Line1: Majority of revenue is from approved specific activities or SIC related retail or whole sale trade

Thank you for the help everyone 🙂

[JosephS1]

Yes, I understand what you are asking can be a bit confusing.  I will try to answer each of your questions in the order in which they were asked.

Question 1 - Business Activity Code:  What you chose is acceptable and there is one other I would submit for you to consider - 455110 which is for Department Stores and Internet Stores.  If you do not wish to change what you have chosen in my opinion is perfectly acceptable.

Question 2 - Income Section:  Yes this can be confusing and IMO does need some editing for better examples.  However, you should choose, under "Items You Can Skip", and for which I have no clue why that title is there, "Sales and service receipts".  When you click on "Start" you will go to the page to enter your sales and/or services.  I suggest you enter the amounts in the "Enter your own categories below" section so you can specifically identify any types of allocations of sales you wish to make.  I have included a screenshot of the sales page below.

Question 3 - Deductions:  This is where things may get a bit tricky.  If you were not "open for business" in 2022 then most of your expenditures could fall under the "organization costs" category and need to be amortized (pro-rated) over the next 5 years. The depreciable items acquired should not begin depreciation until such time they were put in place when you did open for business.  If you were open for business and just did not have any sales what you did is fine.  There is no need to upload any receipts but you must keep them available for proof of expense if they should ever be requested by the IRS or State Revenue Department.  The normal time period to keep receipts is 7 years but if any assets are put in place that has a longer lifespan, such as a storage warehouse or such, you may want to keep those receipts for evidence for the life of the structure just to be on the safe side.

Question 4 - The answer is Yes.  E-Commerce is an approved activity.  One moderate warning to keep in mind are the new rules for issuing a 1099-K for sales amounts or instances.  I have given you a link below from the IRS on your responsibility there.

Form 1099-K

Form 1099-K Instructions

@sasho1987 

[tagteam]

Actually, the business code you chose (454100) is not acceptable as the codes have changed and TurboTax Business will throw a flag (or your return will be rejected) if you try to use it.

You should most likely use the code JosephS1 suggested (455110).

See https://www.irs.gov/instructions/i1065#idm140447348818960

[sasho1987]

Thank you so much for the answers Joseph. 1 and 2 make sense but I have a couple of follow-up questions on 3 and 4.

3- What does it mean open for business? For example in 2022, my LLC was formed on December 16th 2022, I did not have any inventory nor my ecommerce site so does that mean I was not "open for business"?

4- I am not sure that I follow the 1099-K Comment below. Given that I had no sales/revenue and I have not used a 3rd party settlement system, that means I shouldn't have one, correct? or am I missing something here?

@JosephS1 

[sasho]

@tagteam 

Sorry for not replying. For some reason I did not get notified of this reply. Thank you so much for the code recommendation.

[sasho]

Good morning @JosephS1 

Sorry to bother you but I wanted to follow-up to clarify a couple of the things that you mentioned below:

3- What does it mean "open for business"? For example, my LLC was formed on December 16th 2022, I did not have any inventory nor my ecommerce site but I was "open for business" . How do I know what qualifies as "open for business"

4- I am not sure that I follow the 1099-K comment below. Given that I had no sales/revenue and I have not used a 3rd party settlement system in 2022, that means I shouldn't have one, correct? or am I missing something here?

Thank you again for all of your help,

Alex Mansur

[JamesG1]

You are 'open for business' when you are incurring operational business costs.  

Prior to being 'open for business', you are incurring start-up costs.  Your business start-up costs will depend on the type of business you are starting. They may include costs for advertising, travel, surveys, and training.

IRS Publication 583 (pages 9 and 10) states:

Business Start-Up Costs

However, you can elect to deduct up to $10,000 of business start-up costs and up to $5,000 of organizational costs. The $10,000 deduction for business start-up costs is reduced by the amount your total start-up costs exceed $60,000. The $5,000 deduction for organizational costs is reduced by the amount your total organizational costs exceed $50,000. Any remaining costs must be amortized.

Form 1099-K tracks payments you have received through a third-party payment processor like PayPal, Venmo, Square, Etsy, Uber, or Ebay.

@sasho 

[sasho]

Thank you for clarifying that @JamesG1 

so in 2022 we were not "Open For Business" based on the criterias because we had the following costs:

1- LLC Formation cost -> Organizational cost

2- Equipment cost (Laptop) -> Startup cost

3- Consultant fees (training purposes) -> Startup cost

4- Market research tool subscription fees -> Startup cost

we did not have inventory so all of the above fees are then considered "training fees" and are part of startup costs. is that correct?

[ThomasM125]

All your entries are correct except for the computer, which should be entered as an asset in the first year of business operations.