turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

Small Business Deduction Question

Hello, 

I recently started a Single LCC, and will be choosing to be taxed as a sole proprietor. I understand a new businesses can deduct up to $5,000 in taxes for startup costs and an additional $5,000 in organizational costs. I also have a W2 I will be receiving this year. 

 

I have the following expenses I will be deducting for my new LLC:

 

1. Home office 

2. Car miles for business seminars to obtain new business for startup

3. Cost to file for LLC and EIN

4. Plane flight costs associated with seminars to obtain new business for startup

5. Hotel costs for associated with seminars  to obtain new business for startup

6. Social media costs for marketing 

7. New laptop and Business Phone cost

8. Utilities and phone bill

 

Can you clarify which business costs fall under start up costs and organizational costs? 

Connect with an expert
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

2 Replies

Small Business Deduction Question

Small Business Deduction Question

You have so many questions, that are so general in nature, that you probably should either consult an accountant, or at least buy one of the tax guides for small businesses, "Lasser" and "Kiplinger" are two that come to mind, although I don't endorse any particular guide.

 

First of all, "startup" costs are costs you incur before the business is operational.  For example, you have costs in 2023 but the business is not active until 2024, you hold the startup costs and report them on your 2024 tax return.  If your costs are more than $5000 you can still deduct them, but some must be amortized over 15 years, according to a formula.  However, if you incurred the costs in 2023 and the business is active in 2023 (you are actively engaged in ongoing business activities with a profit motive, even if you haven't been paid by a client yet) then you report all your costs on your 2023 return in the normal way.  If your expenses exceed your income, you have a net operating loss, and that may offset your other taxable income or it may be carried forward to the next year and be applied against future profits.  

 

Deductible expenses are those expenses that are "ordinary and necessary" for your type of work.  An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

 

Items with an expected useful life of more than 1 year are generally assets, not expenses (computer and phone, for example) and must be depreciated over time instead of expensed.  There are certain conditions when you can expense an asset (at least 3 different ways that I can think of and probably more, so I won't go into detail, but if you use Turbotax Home & Business and list the items as assets, Turbotax will ask questions to see if you qualify for one of the other methods.)

 

Costs to meet the minimum qualifications of a new career are generally not deductible, but costs to improve or maintain your qualifications in your current business are deductible.  This does not refer to the formation of the LLC, that's something else.  If you were a landscaper, the minimum qualifications would be learning to dig holes, so not much barrier there, and classes on horticulture and land management would be deductible as improving your skills rather than meeting minimum qualifications.  But if you were going into business as something that required a professional certification (for example, a licensed pesticide applicator), the courses and tests to get your license are generally not deductible, but ongoing training and re-tests to renew your license are.

 

If any expense has a dual purpose (such as, using a personal car for business, using your home internet service for business, etc.) you must have a reasonable method for allocating costs between the business and personal use and keep reliable records.  There are exact prescribed methods for business use of a personal vehicle, but the general principle of allocating expenses applies to any dual-use items.  If travel has a personal purpose (you fly to LAs Vegas for a work seminar but spend 3 extra days on holiday) you must similarly allocate costs. 

 

You can start with these IRS publications, but you have a lot of self-educating to do and this is just the tip of the iceberg.

https://www.irs.gov/pub/irs-pdf/p535.pdf

https://www.irs.gov/pub/irs-pdf/p463.pdf

https://www.irs.gov/businesses/small-businesses-self-employed/starting-a-business

message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies