I want to ask a question about the start-up deductions timing.
I’m planning to start a company sometime in 2022. First, my company will begin offering a monetized Youtube channel, so I’ll need to create the company before creating my Youtube channel. Then, later in 2023, I’ll start selling online courses on my website.
The question is that I spent money buying different software, hardware, etc., in 2021, and I’d like to deduct these expenses (start-up expenses). However, before my company creation, I’m supposed to do my tax return in April 2022, so I know I won’t be able to deduct these 2021 start-up expenses in my tax return 2021 (filed in April 2022). So, does it mean I’d miss the opportunity of deducting them? Can I deduct them in my tax return 2022 (filed in April 2023)?
I know I can choose between deducting them the first year or amortizing them in the next 15 years, but I do not know if the expenses must have been made in the year before the company creation if I want to deduct them. Does it matter how long ago I made these purchases?
If you are new to being self employed, are not incorporated or in a partnership and are acting as your own bookkeeper and tax preparer you need to get educated ....
If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-NEC for some of your income but you need to report all your income. So you need to keep your own good records. Here is some reading material……
IRS information on Self Employment….
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
Publication 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
Home Office Expenses … Business Use of the Home
https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction
https://www.irs.gov/pub/irs-pdf/p587.pdf
Publication 946 … Depreciation
https://www.irs.gov/pub/irs-pdf/p946.pdf
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
http://quickbooks.intuit.com/self-employed
Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C. You pay 15.3% for 2017 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 line 27 of the 1040. The SE tax is already included in your tax due or reduced your refund. It is on the 1040 line 57. The SE tax is in addition to your regular income tax on the net profit.
PAYING ESTIMATES
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017 SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.
OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button
I agree with @Critter-3; there is a lot you need to learn.
Specifically, information on deductions for start-up and organizational costs can be found at the link below.
https://www.irs.gov/publications/p535#en_US_2020_publink1000208919
Startup "expenses" are deducted in the year the business first is active. (You would never deduct 2021 expenses on your 2021 tax return unless the business was active and you filed a schedule C, which you say you won't be doing.). You can deduct up to $5000; if the expenses are more than $5000, you may deduct part and must amortize the rest, according to a formula provided by the IRS. There is no particular time limit on expenses, other than that they must be "ordinary and necessary" for the business, and the IRS might question how necessary an expense is if it occurred a long time ago.
However, equipment is somewhat different. Equipment is depreciated based on either its cost or its current fair market value as of the date it is placed in service, whichever is lower. Suppose you buy a camera now for $5000, but you place it in service for the business on July 1, 2022. If the fair market value of that camera in used condition is only $3000 at the time, then your basis for either expensing or depreciating the camera will be $3000, not the full cost of $5000. This principle applies to any assets that can't be expensed (generally, items costing more than $2500 that have a useful life of more than 1 year) and in your case, could conceivably include computers, video and audio recording equipment, and so on.
For that reason, you may want to hold off buying equipment until the year that you will actually place it in service.
Thank you very much for all the information.
Yes, I've been trying to educate myself in the last year, and I've always had in mind to use the QuickBooks Self Employment bundle. Still, lots of things to learn though.
I’ll read all the links you recommended to me.
Thanks, that's the information I needed.
It's good to know I should wait to buy new equipment until the year I start my company (2022). So far, I basically spent money buying software.
@dangimar wrote:....I've always had in mind to use the QuickBooks Self Employment bundle.
QuickBooks has its own Community if you have questions.
See https://quickbooks.intuit.com/learn-support/us-quickbooks-community/misc/03/community-us