LLC Not Open for Business Yet

[PorchBox]

Hi there! I founded a multi-member LLC in July 2020 for a restaurant that will be opening this Spring, 2021.

We spent approx. $10k in start-up costs (some assets, R&D, branding), but have not made any money because we have no sales/aren't open for business.

I am trying to fill out the 1065 form on TurboTax, but am confused on what I put for my business start date. All of my spending this tax season are start-up costs, and when they originally asked for my business start date, it wouldn't let me put a date in the future; so, I put when the LLC was filed. However, now in the deductions section, it is asking for startup costs before that LLC date, even though all of our spending is post that date. 

Does anyone know the best way to declare this date in TurboTax? Thank you!

[M-MTax]

If you are not open for business and are only incurring startup costs then you do not need to file a return.

[AmyC]

All of your costs before opening go into one "bucket" called start-up costs. Once you actually open, then you will start dividing up your expenses into the other categories. If you want to file a return, using the incorporation date, you can. The IRS likes to see returns for businesses. It is not required in your case.

About Form 1065, U.S. Return of Partnership Income states:

Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

[JAKARTA1111]

My situation is similar. In 2021, I formed a LLC with multi members for running a restaurant. We did pay 100K for remodel, lease deposit, company registration, and so forth. However, the restaurant does not open for business yet. I have some questions below:

1. Am I required to file form 1065 even no income generated but had start-up costs in 2021?

2. If yes, what date should I input the business start day in the tax return? Should I put the date of LLC registration in the state? 

3. Should I treat all 100K we paid in 2021 as start-up cost? Prior to business begins, is all spending a start-up cost? 

4. Since the business does not officially start in 2021, should I claim $5000 start-up cost as expense, and amortize the rest 95K as depreciation in 2021 tax return? Or just file a zero 1065 form and claim the start-up cost (expense and amortization) until the business begins?

Your response will be greatly appreciated!

[Vanessa A]

1. Yes, you will need to file a form 1065 for your partnership even if you didn't begin producing income yet.  You will just enter your start up costs.  The IRS requires that you file the 1065 any year the LLC is in existence whether or not you have income.  Also, remember the 1065 is due on March 15, not April 18th like the rest of the tax returns.

2. Yes, you can use the date you registered your LLC with the state.

3. It depends on what the costs consisted of, but if they were necessary to get your business up and running they are generally entered as start up costs. 

4.  If you had $100,000 in start up costs you would not be able to take the $5,000 deduction as this $5,000 is reduced by $1 for every $1 over $50,000.  Therefore, you will need to amortize all of the start up costs. 

[JAKARTA1111]

Thank you Vanessa! Really appreciate your help! The construction is still in progress, and I will need to pay extra 100K in 2022. If I put the date of LLC registration as the business begins, how can I claim the extra 100k as start-up in 2022 form 1065? Also, regarding #4, so I should amortize 100K start-up cost in 2021 form 1065 with $0 business income?

[Vanessa A]

I founded a multi-member LLC in July 2020 for a restaurant that will be opening this Spring, 2021

Are these dates wrong?  Did you open in Spring 2021 or you will not open until Spring 2022?

  When you file your 2022 return, if you have more start up costs in 2022, you will just add to the amount you already have incurred.  Your start up costs continue until you start the business. When you file the return after you open, then you will start amortizing your start up costs. 

[sarahg23]

Amy, the Turbo Tax form requires you to enter a start date for the business in the current tax year to be able to deduct startup expenses. If we haven't started yet, what date are we supposed to put? To be clear, the form requires us to put a start date from the current tax year to enter startup expenses. Would you mind advising what date to put? Thank you!

[AliciaP1]

Since you have not yet started and have no income to report, you should not be filing a return for 2021. As posted in this thread last year:

Per the IRS Instructions for Form 1065:

Who Must File

Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

The amortization of Start-up costs cannot begin until the partnership has begun earning income.

See Publication 535 for more information about Start-Up and Organizational Costs.

@sarahg23