Start-up costs from prior years

I officially formed my business in 2012, however, was working on it and incurring start-up costs in 2011 and 2010. When I filed my tax returns in 2011 and 2010, I filed only my personal tax return and did not files one for the business. In other words, I have never told the IRS how much money I spent on my business in 2011 and 2010. How do I now properly handle this in order to get my full deduction? 
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    To help you with "how" to enter it in Turbo Tax depends on how is your business formed.  Is it a sole proprietorship, S-Corp, etc?

    You can claim your start up costs in the year you actively started your business (2012 in your case). You can deduct up to $5,000 (in most cases) and amortize the remaining over 180 months beginning in the month you started the business.

    Here is some great information that may help you related to which costs are considered start-up costs
    http://www.irs.gov/publications/p535/ch08.html


    • Thank you for your response. My business is an LLC and I have been working on starting it for several years before the actual start year (2012). My question is where/how within the TurboTax online questionnaire can I declare those pre-2012 costs considering the business was formed in 2012 and this is the first time I will file taxes for the business. Thanks!
    • I am no expert, my understanding is that you can claim all pre-2012 costs of starting up your business in the year you start your business. This statement from the pub referenced above seems to substantiate this:
      "For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. The costs that are not deducted currently can be amortized ratably over a 180-month period. The amortization period starts with the month you begin operating your active trade or business. You are not required to attach a statement to make this election. You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business."
    • I have the same question as the above user ogil. If my understanding of his question is correct, it is not "whether" we can claim these startup costs, but rather "how" to do so from within the TurboTax software. The software asks one question with a field for Description, Amount, and Date Incurred. This seems insufficient to cover a multitude of various expenses that span a long period of time.
    • info and ogil - you will lump your start up costs together as a group.  You don't need to list Start Up costs as the individual expenses.  The date can be the start date of the business for those that are incurred prior to the start date.  The area to enter is just past the business expenses and the screen is titled "Enter Business Expenses Not Yet Reported".

      If anything is an "asset" it is treated as such and entered in the Business Assets area...not as a Start Up cost.
    • What happens if start up rolls from one year into the next? Started incurring startup costs in 2012, but have continued to incur in early 2013.  Can I claim start up in both years?
    • My understanding is that you can claim start-up expenses that are incurred during the time leading up to the start of your business, even if they span multiple years. You cannot claim them until you actually start the business, and you claim them on the tax return for the year in which you started the business. Thus, if you started the business in 2013, you would claim them  when you file your 2013 taxes. I believe that you cannot claim expenses for a business you started in 2013 on your 2012 taxes.
    • Thanks efmorris. As I was researching last night, I picked up on that distinction which leads to another question -- when does the IRS deem that you started your business? Created LLC Fall 2012, incurred some startup expenses, that have continued into 2013. Still no contracts yet, but have incurred business development expenses (flights and meeting with potential clients).  On the one hand, I could claim that the business did not start operating until the first client.  The first step I did was create the LLC to keep expenses separate.  But I don't think it would be correct to claim that the business started in August 2012. I don't want to lose any deductions or other tax benefits incurred from August through December 2012.  When I used the August date and tried to input subsequent expenses as Startup, Turbotax notified me that I could not.  Do I thus need to enter a December 31st 2012 date or use a 2013 date(estimating by when I hope to land my first contract) and then I will be able to deduct start up for both tax years? Even if I claim just organizational expenses, these were just the filing fees for the LLC. Any other insights?
    • I am only familiar with rental property, where you are deemed to be in business when you offer your property for rent (e.g. hang out a sign or place an ad). If the same rule applies for other businesses, I would say you are in business when you are ready to sign a contract, however you would need to have an opinion from someone more expert than me. I have found the Nolo books to be helpful for issues such as these.
    • You started your "business" on the date you were able to write a contract or accept payment....the date is is "available", whether or not income was actually received on that date.  Hope that helps.
    • Error check states "Schedule C (Consulting) -- Asset Entry Worksheet (Amortized Startup Costs): Date placed in service is beyond the current tax year. Only assets placed in service in the current tax year or earlier may be entered."  What am I suppsed to answer? If I put December 31, 2012, how will I ensure I don't lose the additional start-up expenses incurred in January 2013?  In answer to your question, the first available date was January 30, 2013 when we held our first meeting. But, TurboTax won't let me do that. Or do I put down December 31, 2012 and then next year use January 30, 2013 and include the January start-up expenses?
    • My understanding is that you cannot claim startup expenses until you actually start a business, and only for the tax year in which you start the business. Thus, if you had not started your business in 2012, you would have to wait until you actually started your business. Now the question is --- when did you start your business per the definition above?
    • Looks like the key is that it is only for the year you started. So, at least I get August-December 2012.  Guess if someone "starts" incurring expenses in the months of November/December they hurt themselves on the ability to deduct StartUp, but then in January of the following year they then deduct them as expenses. I'm assuming it is a wash in that you don't get a higher deduction for expenses vs Startup Expenses?  Thanks.
    • There is a limit of $5000 in startup expenses you can deduct immediately, where operating expenses are not limited. Thus, if you incur less than $5000 in Nov and Dec of 2012, then start your business in January 2013, you can deduct this as startup   on your 2013 taxes (when you file in 2014). Let me qualify all this by saying that I am not a CPA, and do not guarantee this is correct. This is just my understanding of the law.
    • Thanks. I guess for TurboTax purposes though I will need to just put down 12/31/12 and then see if the system will let me add the month of January and include StartUp Expenses. I'm also assuming the little that exceeded the $5000 limit I check Amort option?
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