Writing off expenses from the year(s) before starting your business

[freaksells]

Hello, I am planning to start a business and have already paid to have a website developed. I am not ready to start doing business with the public yet and will not be ready until sometime in 2023. I have not set up my LLC yet and did not plan set it up in 2022. I am wondering if I can set up my LLC and start doing business in 2023 and still write off my website expenses from 2022. My concern is that the business did not exist in the year when the expenses were incurred and I am not sure if I can write off those expenses under th[se circumstances.  Thank you

[TaxandtheCurious]

Congrats on starting a business! Yes, you are eligible to deduct expenses before you actually open your doors for business, however, the IRS has specific guidelines on how to handle these.  When starting a business, owners should treat all eligible costs incurred before beginning to operate the business as "capital expenditures" that are part of their basis in the business and can recover costs of assets thru depreciation based on when the business becomes operational/active.

Additionally, the business can also deduct a limited amount of "start-up" and organizational costs over a 180-month period.  This recovery period begins the month begins to operate as an active trade or business.  Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.

Qualifying costs

A start-up cost is recoverable if it meets both of the following requirements:

• It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.
• It's a cost a business pays or incurs before the day their active trade or business begins.

Start-up costs include amounts paid for the following:

• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business.
• Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
• Salaries and fees for executives and consultants, or for similar professional services.

Nonqualifying costs

Start-up costs don't include deductible interest, taxes, or research and experimental costs.