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Entering expenses for sole prop LLC

Hi all. 

My wife and I use Quickbooks Online to manage our business expenses. Last year after I got laid off, we started our LLC(2 members but live in a community state). Our EIN is considered a Sole Prop. We formed our company in 2023 so this will be our first year in business.

Going through turbo tax on our personal taxes I am trying to figure out how to add expenses that the business incurred last year as we were developing/patenting our product. 

From the looks of it, TurboTax says "If you and your spouse own a business together, you’ll need to split your business income and expenses between the two of you according to ownership percentages."

- Does this mean that since we are considered 50/50 owners that I have split expenses/income(none) 50/50 on two separate entries? 
- IRS views us as Sole Prop - can we just enter it all on the one person who is listed  on the EIN issuance letter? 

Expenses question:
- When entering our business expenses, it looks like TurboTax wants me to enter each and every transaction incurred for that particular expense(Description, Date, Amount) - is there a way to enter a total amount for the particular category? 

- We use Quickbooks Online to manage our business expenses, it seems absolutely insane and a giant waste of time for us to have to pull each and every single transaction in every category out of QBO and manually enter them in TT. 

Income Question: 
- Business had no income in 2023 as we were developing/researching/testing our product as well as going through the patent application process. Our plans of launching in November had to be pushed back to early Q1 of this year so I am a bit worried about how this may look from a tax perspective. 

Thanks

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1 Reply
LeticiaF1
Employee Tax Expert

Entering expenses for sole prop LLC

1. Company- since you live in a community property state, your business is a Qualified Joint Venture which is an IRS term for an unincorporated business that is jointly owned and run by a married couple. Ordinarily, a jointly owned unincorporated business would have to file a partnership return, but if the partners are married, they can file as a sole proprietorship with their tax return.  Some other requirements to qualify are:

 

  • The couple must share net income and deductions in the same proportion as each spouse’s interest in the business. Their respective percentages of the business are determined by the partnership agreement.
  • There must be no other partners in the business.
  • Both spouses must materially participate in the business.
  • Each spouse must include a separate Schedule C reflecting his/her share of the income and deductions on their joint tax return.
  • Each spouse must include a separate Schedule SE that shows that spouse’s self-employment income with their joint tax return.
  • If the business has employees, then one of the spouses must be designated as the party responsible for reporting and paying employment taxes for those employees.

2. Expense Classification-Expenses are usually grouped by categories, see some of the most common expenses below:

 

  • Communication costs, for example, mobile phones, data plans, internet or wireless services, land or fax lines, long-distance charges, voicemail or answering services, call waiting, etc.
    • If also used for personal reasons (for example, mobile phones and internet service), then only the proportion used in business is allowed as an expense
  • Office supplies (paper, toner, writing instruments, etc.), software, stamps, envelopes, shipping materials, cleaning supplies
  • Any licenses or permits that are required for your profession
  • Fees and membership dues you paid to professional associations or unions
  • Continuing education or certification related to your work
  • Mileage accumulated during your work
    • However, regularly commuting to and from a fixed office wouldn't qualify
  • Advertising costs, including business cards and websites
  • Fees for attorneys, consultants, accountants, and other professionals
  • Liability insurance, errors and omissions insurance, and surety bonds
  • Credit card and bank fees
  • Health care premiums

3. Income- If your business had no income in 2023, you do not need to file a return.  All of the expenses you had can be claimed as Start up expenses, once you start having income.  

 

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