new business deductions the prior year

[jmguitas]

I started a LLC in 2021 while still employed for another company.  I am looking to deduct the start up expenses, up to $5000 in 2021.  My business effective date is 1/1/2022.

What form do I need to include on my tax forms this year when filing 2021 taxes?

[DianeW777 · Accepted solution]

Unfortunately the start-up expenses must be used on the tax return after the business operations begin.  In 2022 you can use the start-up expenses in one of two ways.

1. Amortize all of them over 180 months (IRC Section 195 Property)
2. Deduct them up to $5,000 in the year the business is open.

• Start up costs - if you had any expenses before you actually opened for business services such as legal fees, market study or organization fees
  • The IRS allows you to deduct $5,000 in business startup costs and $5,000 in organizational costs, but only if your total startup costs are $50,000 or less
  • Add them as Business Expenses. Continue past the expense categories (or choose Other Miscellaneous Expenses) to the page titled "Enter Business Expenses Not Yet Reported" and enter the description & amount 
    • If you have more than $5000 in start-up costs, the remainder is entered under Assets/Depreciation as a capital asset for amortization (TurboTax provides this category for you).

@jmguitas 

[Edited: 02/18/2022 | 7:22a PST]

[jmguitas]

Actually, I was working on starting the business in November 1, 2021.  I had no income from my LLC in that year, but I had costs associated with the business, such as a laptop computer, purchase software, etc.

How do I take care of these amounts?  I now upgraded to the small business version of Turbotax.

[DianeW777]

If you are saying the business operations actually began in 2021, you can enter the start up costs on your return for 2021.  As indicated you can use either option or both depending on the cost of your start up expense.

To begin your business entry follow the steps below.

1. Open or continue your return
2. Search for schedule c and click the Jump to link in the search results
3. Answer Yes to Did you have any self-employment income or expenses?
4. Follow the onscreen instructions

5. Once you have started your business schedule follow the instructions to add more expenses:

6. Business Expenses. Continue past the expense categories (or choose Other Miscellaneous Expenses) to the page titled "Enter Business Expenses Not Yet Reported" and enter the description & amount 
7. If the start up expenses are greater than $5,000 you will enter an Asset for any excess. See the image for the description selection.

8. Start up Expense listed as a 'Miscellaneous Expense' - see the image below