@DRB wrote:
Thank you for your reply, I very much appreciate it. I do want to drill down a little bit further, if you'll allow.
First, the business will be structured as an LLC. I already have a few and am familiar with the filings for regular operations. (I'm a retired CPA myself, though not from a tax practice.). This will be, though, the first business I've built and owned that has a website that's a key part of the business. I may have to pay the contractor at least half the $5,000 cost to develop the site in the month of December. If possible I'd postpone all payment to the contractor until January 2024.
If I did delay the total payment and deployed the website in 2024, would I treat that cost as a startup cost to be amortized, a single payment to a contractor to be expensed on Schedule C, or could I take a Sec. 179 deduction? If I have to pay half the cost in 2023, does that portion of the cost become startup cost, will the remaining amount also be part of the startup cost, or will I have options to handle the two payments differently?
Again, thank you very much for help. I appreciate it very much!
David
As best I understand it, you don't file a schedule C if the business is not "ongoing", so you save your startup costs for the first year you file a schedule C.
A startup cost is a cost that "a business pays or incurs before the day their active trade or business begins", so whether you pay your developer in 2023 or 2024, that's a startup cost. I will admit to being puzzled by "pays or incurs" since cash based businesses usually based their accounting on when a cost is paid. But elsewhere, the IRS just says "incurs".
https://www.irs.gov/newsroom/heres-how-businesses-can-deduct-startup-costs-from-their-federal-taxes
https://www.irs.gov/publications/p583
https://www.irs.gov/publications/p535#en_US_2022_publink1000208919
A web site appears to be considered an asset most of the time, see here for example.
https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/web-design-an-asset-or-an-e...
In that case, you list the development costs as part of the cost basis of the asset. Once the asset is placed in service, you would depreciate it. I don't think a custom web site is eligible for section 179 although I could be proven wrong. It's also not eligible for the tangible property safe harbor because it is not tangible property. I think you just depreciate the web site over it's expected useful life or its class life, whatever that is.
The payment to the contractor is still subject to the issuance of a 1099, but it would not be a regular expense, but an expense toward building the web site as an asset (like issuing a 1099 to a contractor who was building a physical office building).
Other startup costs would be deductible up to $5000 in the year you being actively engaging in the business.
