Can I claim expenses before the business is open?

[needanswer50]

Can I file for expenses for my new business before the end of the year, but open and register my new business after the new year? I already bought  , printer,computer and alike, but haven't  register or opened my new business and plan to do it after the new year of 2018.  Will I lose them if won't open business before 2018? 

Will they carry to the next year is my business will be registered only in 2018, or I'll lose those expenses?

Can I claim those expenses in 2017, even though my new business is not opened or registeted yet?

Thank you.

[Hal_Al]

See <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4134736-can-i-deduct-expenses-for-camera-equip-for-a-business-that...>

[Carl]

Expenses incurred prior to a business being "open for business" are not expenses. They are startup costs. Startup costs are deductible in the first year the business is open, and it does not matter in what year those startup costs were incurred either.

[Opus 17]

You can deduct your startup costs in the first year that you actually report income.  If you have less than $5000 of startup costs, you can directly expense them in the first year.  If you have more than $5000 of startup costs, then part can be expensed, and part must be amortized over 15 years.  There is formula that turbotax will help you with.

[needanswer50]

Thank you but I'm stil, confused as to my initial  question . Will it be OK to open the new business and registered it only next year 2018, but still claim the expenses for it this year 2017?

[needanswer50]

Also, wil, those expenses carry on to 2018 when I'll open my business and  have income?

[Opus 17]

Whatever state licensing or registration requirements you might have, don't affect your federal taxes.   You have a business if you engage in work with the intent to make a profit, regardless of what kind of registration or license you have one when you get it.

 Now, if you intend to make yourself an LLC, or an S Corp. or a C Corp., then you will have some very different tax rules then if you are a sole proprietor ship on schedule C.  But that still doesn't change the fact that if you have start up costs in a tax year before the first year when you have income, you can expense or amortize the start up costs beginning when you actually have income.

[jonseymour]

Carl, thanks for this info! I prepare my own taxes each year and did exactly as you suggest (deducted $5,000 in startup costs incurred in 2016 for a business that didn't open until 2017). I'm now getting audited (routine Schedule C questions and not related to the startup costs) but my accountant is insisting to me that I erred in this particular deduction. How sure are you of this ("it does not matter in what year those startup costs were incurred") and can you provide solid "proof" that I can share with my accountant? I would really appreciate any help here. Thanks again! Jon

[Lisa995]

You'll want to refer to Publication 535 for the IRS rules about start-up costs.  Obviously you could only deduct the $5000 if you had $5000 or more in start up expenses, anything over $5000  would have to be amortized over 15 years.

https://ttlc.intuit.com/community/business-taxes/discussion/where-do-i-enter-my-schedule-c-start-up-...

[pprachi14]

Hi jonseymour, 

I am in exactly the same situation.  I incurred start up costs but did not register my business until Jan 2020. 

What examples of audit questions are you receiving from IRS?

Is it still legitimate to claim start up expenses incurred in 2019 if business EIN was not obtained until Jan 2020?

Your response will be much appreciated. 

[JohnB5677]

The EIN is very important, but it could does not necessarily determine the start of your business.   Your business officially starts when the business begins operations. That means when the doors open.

You do not have to generate income or sales on the first day of operations, but you must be operating the business so that you can generate income.  Purchasing Inventory, having staffing, advertising a date would all be considered.

This is important because it determines when start- up costs can start to be amortized.

[Carl]

but my accountant is insisting to me that I erred in this particular deduction

So did you? I think you mean to say you erred in the way you claimed/entered it, because I'm sure your accountant knows you're entitled to it. I suspect you may not have entered it correctly. The start-up expense should be classified as an amortized asset under IRC Code Section 195 with a maximum lifespan of 15 years if the costs exceeds $5000, or 1 year if under $5000. It appears on the SCH C Part V, Other Expenses.

This is covered in IRS publication 535 starting on page 26 at https://www.irs.gov/pub/irs-pdf/p535.pdf

[houston_taxes_125]

If I opened virtual car show company Topmarq and paid for it with personal $$. Can I expense it to the corporate account now that it is setup and then expense the costs? It was less than $5000

[houston_taxes_125]

If I paid for my virtual car show company's startup expenses with my personal account before incorporation, can I reimburse myself with funds from the corporate account and then deduct them in the first year? They were under $5000USD. Thanks!

[Anonymous]

This is done. but in order to be deductible in year 1, the website needs to have gone live in that year,.  ie opened for business.