Start-up Cost for PLC

[uncfooz]

Good evening,

My wife just started her own therapist practice this year. She organized as a Professional Liability Company (PLC).  We are married filing jointly and I understand we will report the income and expenses from her business on our individual return this year.  I have several questions regarding to the tax impacts of her starting her new business:

1) Her business began in late Q3 (September).  She will not be earning more money that she will expend in 2023, therefore she will have a business loss for 2023.  Confirming I don't need to worry about estimating taxes for Q4 2023.?

2) At what point do I need to estimate and pay for taxes on a quarterly basis?  Is it when she expects earns more than she expenses and estimated taxes are greater than $1,000?

3) How do I report her new business income and expenses in our individual tax return? 

4) Assume her business loss for 2023 will offset our individual income dollar for dollar from my salary and other income like dividends, etc?

5) Are there any limits to how much organizational start-up businesses expenses we can deduct on our 1040 tax return for this year?   

6) Are all other business expenses (ie, rent for office, furniture for office location, mileage traveling to/from office, internet, utilities, etc.) not related to start-up expenses deductible on our tax return?

7) Is there a first year business tax deductions available for businesses starting like hers, even if she has a business loss (expenses greater than income) in this first year?

😎 Any tips/calculators out there to help me determine her estimated quarterly tax payments for the business starting in 2024 once she meets the criteria for us to pay quarterly taxes on the business?

[Cindy4]

Hi @uncfooz !

I am going to start at the end of your questions and share this guide:

https://turbotax.intuit.com/tax-tips/self-employment-taxes/a-self-employment-tax-guide-for-therapist...

1) If she expects a business loss for 2023, no need to worry about estimated tax.

2) You are correct about paying estimated taxes when she expects earn more than she expenses and estimated taxes are greater than $1,000?  Don't forget to factor in the 15.3% of self-employment tax on profit.

3) You will report on a Schedule C, providing she is a PLLC - Professional Limited Liability Company, and not a PLC - Public Limited Company, and didn't do an entity declaration with the IRS to be taxed as a corporation.

4) Any loss on a Schedule C will offset any other income you have on your individual return.

5) Start-up costs are limited to $5,000 with the balance amortized over 15 years.  Organizational costs are related to corporations or partnerships.

6) Other business expenses would be deducted on the Schedule C, with the larger items such as office furniture being depreciated.   Here is a searchable resource from the IRS regarding business expenses:  https://www.irs.gov/publications/p535

7) The only tax deduction for the loss is the offset of your other income.  If the loss is not completely used, it will carry forward and offset future business income.

Hope this helps and best wishes on your new endeavor!

Cindy

[uncfooz]

Thanks so much Cindy!   Can you please help me understand the different between start up costs and organizational costs?  

Does the $5,000 limit apply to the start up costs, organizational costs, or both?

[Loretta P]

Hello @uncfooz   

Business startup and organization costs are both generally considered capital expenditures; however the IRS does allow you to elect to deduct up to $5000 of business startup and $5000 of organizational costs paid or incurred after 10/22/2004.  The IRS requires you to reduce the $5000 deduction by the amount of your total startup or organizational costs that exceed $50,000.  Any remaining costs must be amortized.  

There are 3 categories of startup costs the IRS considers eligible for tax deductions: 

• Creating a trade or business (including investigating the creation or purchase of an active trade/business)
• Preparing the business to open
• Organizational costs

I've listed some helpful links which go into further detail below.

Helpful links:

Publication 535 (2022), Business Expenses 

Your guide to small business start up costs and taxes for 2023