Business startup costs - timing of deduction for Single member LLC

[WL1969]

- single member LLC (California) established in August 2024

- online services marketplace; website and marketplace platform under development

- not yet open to customers (expected later in 2025); website unavailable to sign-up

- obviously no income yet but several startup and organizing expenses incurred in 2024 (~$9k) and in 2025 (will be another $9-10k).

Questions:

1)When should I claim startup deduction - TY 2024 or 2025?

I understand that the business startup deduction should be claimed in the year the business is operational. In 2024, my business was established (legally) but not operational (since no customers could use it). If I launch the website in 2025 (i.e. available for customer sign-ups), should I be claiming the deduction in 2025 taxes?

2) Should I even file a business tax return for 2024?

If answer to above is 2025, do I even need to file a business tax return for 2024? Are there any categories of expenses that I should deduct in 2024 taxes (e.g, home office or other)?

3) Is there a limited window of time to accumulate startup expenses?

Let's say my business will open to public on 10/1/2025. Is there a limit (e.g., 1 year) to how far back I can go for accumulating startup expenses? Can I include costs incurred more than a year ago, even before LLC was established (such as domain registration costs in Feb 2024, or home office costs incurred from June 2024)?

4) Any difference for Federal vs. CA?

Thank you!

[PatriciaV]

1) You would report your start-up costs in the year your business starts. This means you are actively marketing your business to customers and are ready to begin providing goods and/or services.

2) If your single-member LLC has not elected to be taxed as an S-Corporation, the activity is reported on Schedule C of your personal tax return. Again, you would first report on Schedule C in the tax year when the business officially opens.

   If you have elected to be taxed as an S-Corp, you must file Form 1120S every year, whether it has taxable income or not. You will need TurboTax Business to prepare this business tax return. The due date for tax year 2024 was March 15, 2025.

   If you have registered the LLC with your State, you may need to file partnership or corporation fees and/or taxes. Check with your State Comptroller's office for more information. You can find links here: State Departments of Revenue

3) There is no time limit for the accumulation of startup costs, which include expenses that would normally be deductible if the business was active, like Home Office expenses.
   Up to $5,000 of startup costs paid or incurred can be deducted the first year if the total startup costs incurred don't exceed $50,000. An election can be made to amortize costs in excess of $5,000 over a period of 15 years. The IRS sets this rule -- you cannot choose a different amortization period.

See also: IRS Pub 583 Business Start-Up Costs

[WL1969]

Thank you @PatriciaV . That's very helpful.

To clarify, I have not made an S-corp election.

Follow up:
1) I read somewhere a recommendation to still File Schedule C for 2024, as this creates a paper trail for future deductions. Specifically, to report the startup costs as a non-deductible expense (list under "Other Expenses" with a note: "Startup costs to be amortized in 2025"). Do you agree with this?

2) I still need to File California Form 568. How do I do this if I don't file a return for this business for 2024?

(Note: I have already paid the $800 CA tax for 2025)

Thank you!

[PatriciaV]

1) TurboTax does not provide a nondeductible expense category. There is no need to create a paper trail for a business that has not begun to solicit customers.

2) If you have paid the LLC tax for tax year 2025, you will report that payment when you file your 2025 tax return, which is due April 2026.