Should I file my LLC if I don't make profit?

[antd1125]

Hi,

I opened single-member LLC in May 2023 that will not generate profit by the end of the year.  Following all the business expenses, the LLC will most likely incur a ~$3k loss in 2023.  Should I still file the LLC in my 2023 taxes if there won't be a profit in 2023?  What are the benefits in filing the LLC if I am taking on a loss?  Any information/recommendations would be greatly appreciated - thank you!

[GCEA]

Hi @antd1125 ,

It is not uncommon for new businesses to have losses in the first few years. You should report your losses/expense incurred in your Schedule C .  You can deduct the following startup cost:

• Expenses related to creating the business
• Expenses related to launching the business
• Business organization costs

You can only write off these expenses if you actually opened up the business. Start up cost are limited to $5,000 deduction the 1st year and if it exceeds that amount you would have to amortize the remaining balance. 

The loss is apply against any ordinary income you earned  (Examples of ordinary income : W2 income, 1099 NEC, Sch C ) therefore reducing your taxable income. 

Please make sure you to review the guidelines between a business or hobby according to the IRS rules. I included the link below.

Here are some helpful links:

Startup Business Tax Tips 

Calculate your startup costs 

Business or Hobby? Answer Has Implications for Deductions  

Taking Business Tax Deductions 

Thank you and good luck! 

[Anonymous_]

Single-member LLCs (without an election to be treated as corporations for federal income tax purposes) are disregarded entities and file on Schedule C (Form 1040).

If you have a net loss on Schedule C, you can use that loss to offset your other income.

[lramkumar]

Hello antd1125!

If your LLC is incorporated, yes you should file it in your personal taxes.  Per IRS guidelines,  you are allowed to take the loss which was generated without any income the first year.  You are continuing the business and intend to have profit in the next year, you want to be able to take that deduction for expenses when you incurr it.   

Suggest filing the LLC with your individual return if it is a sole proprietor.

Thank you!

[Anonymous_]

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@lramkumar wrote:

If your LLC is incorporated, yes you should file it in your personal taxes.  

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If the LLC has made an election to be treated as a corporation for federal income tax purposes, then it would file either an 1120 or 1120-S.

Most likely, the LLC, as a single-member LLC, would file a Schedule C (Form 1040) as it is treated the same as a sole proprietorship.