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xutianaaa
Level 1

Can I deduct prior years' $800 LLC tax as startup expense?

My LLC was formed in 2016 and my business start date is in 2019. Can I deduct the $800 LLC tax paid in year 2016, 2017 and 2018 as a business startup expense?

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Accepted Solutions
Anonymous
Not applicable

Can I deduct prior years' $800 LLC tax as startup expense?

yes if they don't fall within the definition of section 164 taxes

 

from section 195 - start up expenses

The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.

 

section 164(a) covers franchise taxes as well

 

164(a)General rule 

Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:

(3)
State and local, and foreign, income, war profits, and excess profits taxes.
(4)
The GST tax imposed on income distributions.
 
In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income).
so if the LLC tax is any of 1 through 4, they are not start up expenses.
 
however,    if they are franchise taxes, they would fall under the last paragraph.   since you have not been carrying on a trade or business or an activity described in section 212,  they would not be sec 164 taxes and would seem to fall under IRC 195(c)(1)(A)(iii)  and thus would be start up expenses.    

View solution in original post

1 Reply
Anonymous
Not applicable

Can I deduct prior years' $800 LLC tax as startup expense?

yes if they don't fall within the definition of section 164 taxes

 

from section 195 - start up expenses

The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.

 

section 164(a) covers franchise taxes as well

 

164(a)General rule 

Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:

(3)
State and local, and foreign, income, war profits, and excess profits taxes.
(4)
The GST tax imposed on income distributions.
 
In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income).
so if the LLC tax is any of 1 through 4, they are not start up expenses.
 
however,    if they are franchise taxes, they would fall under the last paragraph.   since you have not been carrying on a trade or business or an activity described in section 212,  they would not be sec 164 taxes and would seem to fall under IRC 195(c)(1)(A)(iii)  and thus would be start up expenses.    

View solution in original post

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