When does the IRS consider your LLC to have started operating, is this the day you file the Articles of Organization or some other date?

[walvernon]

We started an LLC (filing as a partnership) in 2017, completed a final board game prototype and launched a Kickstarter campaign in September 2017 that was not successful.  We are still actively working on getting the board game published.  Would the IRS consider this LLC as operating in 2017? We would like to deduct startup costs from 2017 but can only do this if our LLC was considered operating in 2017.

[MichaelDC · Accepted solution]

The IRS has a sort-of definitive answer about when a business begins, and it can vary.

Ordinarily, a corporation begins business when it starts the business operations for which it was organized;... on the date of its incorporation. Mere organizational activities, such as the obtaining of the corporate charter, are not alone sufficient to show the beginning of business.

However, the IRS also states that the process of beginning the business such as buying necessary operating assets, inventory, 'setting up shop' can also be a sign that a business has begun. To learn more on Starting a Business from the IRS please see Starting A Business.  So you can use the start date of the date you filed or when you began buying inventory.

[kuancat]

I have the same question and have been researching for over an hour. Has anyone actually answered your question or have you been able to find the answer last year? Can the start date NOT be the llc formation date? Thanks!

[rockstar7]

I found this link. Hope it helps on solving your question

The Date When a Business Actually Starts (thebalancesmb.com)

[Carl]

For an LLC, laws differ state to state.

In my state of Florida, if you include an "effective date" in your Articles of Organization, then the business is considered to be open for business on that date. If you do not include an effective date, then the business is considered to be open for business on either the date of submission, or the date your articles are processed by the state (can't recall which).

If you have an effective date that is a future date, then the business will be entered into the state system in an "inactive" status, and will go to "active" status on the date specified in the articles. Once the business is active, you are required to file a DR-405 with your local county in the first year it's active. You then have to file every year after that if required.

Now FL does not have a state income tax. Therefore no state tax return is required for the business. If in that first year (and each subsequent year after) the business produces no income *and* incurs no expenses, filing a SCH C with the federal return is not required. It is optional however, if you want to go ahead and claim start up expenses. However, if your business has no income in that first year it's considered active, filing the SCH C for the only purpose of claiming startup expenses is a moot point, since there's no business income to deduct those startup expenses from.

For Florida, a "yearly filing" is required with the state Division of Corporations in order to main the active status of the business, weather the business produced income or not, and weather the business incurred expenses or not. This "yearly filing" with the state Division of Corporations has absolutely nothing to do with taxes either. It's just a requirement to maintain the business in active status each year. In Florida, the filing is due by May 1st of each year.

I'm not sure on the day count, but I think once a yearly filing is more than 30 days past due, the business is considered abandoned and the status is changed to Inactive. The penalty payment to re-instate after missing the May 1 deadline is quite high also. About three times the filing fee.

[Anonymous_]

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@Carl wrote:

I'm not sure on the day count, but I think once a yearly filing is more than 30 days past due, the business is considered abandoned and the status is changed to Inactive. The penalty payment to re-instate after missing the May 1 deadline is quite high also. About three times the filing fee.

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The fee for a late filing is steep - $400 after May 1st. However, not much happens until sometime in September if an annual report is not filed. After that time, the state, as is the case in almost all other states, will administratively dissolve the entity.

[MGT55]

When does the IRS consider your LLC to have started operating, is this the day you file the Articles of Organization or some other date?

[Carl]

When does the IRS consider your LLC to have started operating, is this the day you file the Articles of Organization or some other date?

For Florida, it's the date you file unless you specified otherwise in the "effective date" field of your filing.