My LLC is a passion project - expected impact on taxes?

[RJO]

I started a small web business (LLC) more as a retirement / passion project / hobby project so that I could learn new skills and keep my mind active.  Never expected it to be big volume or very (if at all) profitable.  So far, I've invested $10,800 in various aspects of the business (web design, brochures, business cards, samples, advertising, office supplies, etc) and I have gross sales YTD 2019 of $1,500, with net to me (after revenue sharing with my suppliers) of $500.  This is about what I'd expected YTD - no matter that it's not a big business or generating lots of profit, I'm having fun.  I don't expect much more additional big expenses going forward, except for reprinting brochures, monthly web hosting fees, possibly some advertising.

1/3 of the expenses were incurred before my official LLC 'go live date' of March 1 2019.  

Given these financials, I assume the loss on the year will be substantial; can I deduct all these expenses in year 1, or because some of the expenses were incurred before my 'go live' date, I have to spread it out over 2 years?

Is TT Home & Business the right version for me?

[tagteam]

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"Is TT Home & Business the right version for me?"

Yes, the Home & Business version should work just fine for your purposes. I would suggest that you read through Publication 535 (links below) with respect to business expenses.

Regarding your stated objective, you should be aware that hobbies/activities engaged in not-for-profit have limits on losses that can be deducted from other income.

See https://www.irs.gov/publications/p535#en_US_2018_publink1000208630

Regarding expenses incurred prior to "going live", those are start-up expenses of which you can deduct up to $5,000 and must amortize amounts in excess of that figure.

See https://www.irs.gov/publications/p535#en_US_2018_publink1000208919

[RJO]

Thanks for the quick response.  As a clarifier, I'm not operating this as a non-profit.  I just meant to convey that I doubt I'll be making a profit on it this year!  

I'll hunt down other IRS publication articles re treatment of business expenses for a regular LLC.

[VolvoGirl]

What kind of LLC?   If you are a Single Member LLC it is a disregarded entity and you fill out schedule C in your personal 1040 return.  You report it the same as self employment sole proprietor income.

Unless you set it up as an S corp.  then you have to file a separate 1120 S Business return.

For schedule C........

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  You will need to use the Online Self Employed version or any Desktop program but the Desktop Home & Business version will have the most help.

For the future, There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You need to report all your income even if you don't get a 1099Misc. You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  You do get to take off the 50% ER portion of the SE tax as an adjustment on Schedule 1 line 27.  The SE tax is already included in your tax due or reduced your refund.  It is on the Schedule 4 line 57.  The SE tax is in addition to your regular income tax on the net profit.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

[tagteam]

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@RJO wrote:

As a clarifier, I'm not operating this as a non-profit.  I just meant to convey that I doubt I'll be making a profit on it this year!  

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That is just fine. The tax code and regulations only require that you intend to make a profit when engaging in an activity to avoid the hobby loss (loss limitation) rules.