Claiming Deductions for Previous Year's Expenses (that were paid this year 2021)

[CVegas]

I have a multi-member LLC. Last year was our first year in business and there were a lot of expenses that I paid privately, out of pocket and never had the opportunity to have the business pay me back for these expenses (as we had limited funds). Therefore, I also never claimed any of these expenses as tax deductions to reduce our taxable income for the LLC. 

However, this year (2021) I was able to reimburse myself for all of these expenses. Am I able to deduct them on this years Business Multi-Member LLC filing as this is the year the company actually paid for the items/services/fees/licenses, etc.?

[DianeW777 · Accepted solution]

Perhaps!  If your LLC is on the cash basis then the answer is yes.  Take the expenses in the year they were paid, which would be 2021.

If by chance the LLC is a business set up on the accrual method, then expenses are deducted in the year accrued regardless of when they are paid. In this situation you would amend the prior year to include them.

[Carl]

Assuming your business uses the cash basis accounting method, (a majority do) all income and expenses are claimed/reported in the tax year the transaction occurred. It does not matter what year that transaction was for.

[maglib]

@CVegas  The deduction is allowed in the year the asset is placed in service regardless of when the asset was purchased.

  You may be able to elect under Section 179 to recover all or part of the cost of qualifying property, up to a certain determinable dollar limit, in the taxable year you place the qualifying property in service.

Or if you depreciate the assets:

When Does Depreciation Begin and End?

You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first.

Placed in Service

You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.

[maglib]

@CVegas  As @Carl  said, you are not required to file an Illinois return.  Regarding the Idaho return the Idaho rule requires the IRS form 8332 to be filed to claim a dependent so no, they would not be able to claim them in the off year for Idaho.   

On another note though you can make TT, if allowed by the state, to claim dependents you don't claim federally that you are allowed to claim but, dont.  You file your federal return, save it.  Then save another file with _state in it and add the dependents to that return and file that state. I do it every year for NY as there is no benefit for me to claim my kids federally but they file not claiming themselves federally to claim the college tax credits.  The only thing is to remember the following federal year to deduct the correct state taxes paid.