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Level 2

Question

Can I claim expenses before the business is open?

Forum|Forum|7 years ago
June 6, 2019
6 replies
0 views

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.

TurboTax Self Employed Online

Hal_Al

Level 15

See <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/4134736-can-i-deduct-expenses-for-camera-equip-for-a-business-that-has-no-income-yet-i-am-working-for-free-to-build-my-portfolio-but-can-i-claim-photo-expenses-on-my-taxes">https://ttlc.intuit.com/questions/4134736-can-i-deduct-expenses-for-camera-equip-for-a-business-that-has-no-income-yet-i-am-working-for-free-to-build-my-portfolio-but-can-i-claim-photo-expenses-on-my-taxes</a>

Opus 17

Level 15

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.

Opus 17

Level 15

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.

joewitt

Level 2

So I just created the business in NJ today 1/27/2022. Tax ID created last year. I realize I can write off the FED start up and/or expenses but will that cause an issue in NJ because the business was not licensed yet? When the software transmits the federal info, can that same info be an issue when transmitted to NJ?

Carl

Level 11

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.

jonseymour

Level 2

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

Alumni - Champ

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-cost/00/428193

♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪

houston_taxes_125

Level 2

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

Level 2

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.

houston_taxes_125

Level 2

Gotcha - this should be a problem! Thanks @12309 !!

joewitt

Level 2

GeorgeM777

Level 11

No, it should not cause an issue with NJ Division of Taxation unless such expense allowed on your federal return is specifically exempted by NJ. For example, New Jersey does not allow federal deductions, such as mortgage interest, employee business expenses, and IRA and Keogh Plan contributions. The assumption here is that the expenses you intend to take on your federal return were incurred in 2021, and once your federal return is completed, then the net profit or loss from your business will be entered on your 2021 NJ return.

There does appear to be two different considerations here, one relating to taxation and one relating to licensure (the ability to legally conduct a business in NJ). While your start-up business expenses, allowed on your federal return, do not appear to be specifically exempted by NJ, whether your ownership and operation of a NJ business prior to license (if that was the case) is another matter for which we cannot offer any advice.

With regard to doing business in NJ and NJ taxes related to doing business, below are two links that you might find helpful.

Starting a Business in New Jersey

NJ Division of Taxation

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