Can I claim a deduction for small business expenses in 2016, even if I haven't gotten a tax id or started generating revenue until 2017?

[yakamatsu]

I have spent money on photography equipment in 2016 and prior years that I will use to generate revenue for a small photography business in 2017 and forward.  Can I capitalize all of the equipment and depreciate it over the next few years as long as i have documentation of the expenses?  Or can I expense all of it that was spent in 2016, even though I do not have my tax id set up and haven't generated any revenue yet?

[DS30 · Accepted solution]

It depends on when you actually started your business, the type of business (sole proprietor or separate business entity) and the cost of the equipment.

If your business in a separate entity (multi-member LLC, partnership, corporation) and you did not start the business until you got your EIN in 2017, then you will not be able to take any expense in 2016. You will include these assets in your business on the date your business started. You will capitalize them and be able to depreciation them (or take a Sec 179 deduction if applicable) during 2017 and beyond.

If your business in a sole proprietorship (or single member LLC), you can decide to start the business in 2016 or 2017 even though you have not received your EIN until 2017 and had no income in 2016. If you decided to start your business in 2016, you may be able to expense these items in 2016. The cost of each item will determine if you expense it or capitalize it. You would expense an item if the item's value is less than $200 and capitalize an item if the value is more than $200 (but being able to take into account any Section 179 deduction).

Here is some additional information on depreciation Small Business and Self-Employed - Depreciation and TurboTax - Depreciation of Business Assets

[Opus 17]

You can't expense it in 2016.  You can expense up to $5000 of startup costs in the year that your business becomes active, as long as your total startup costs are less than $50,000.  Startup costs more than $5000 must be amortized over 15 years.  (You can also elect to amortize all your startup costs over 15 years.) 

You may get a better tax treatment if you treat individual items as business assets rather than start up costs.  For example, a camera that you bought for personal use and that you convert to business use in 2017 would be depreciated over 5 or 7 years rather than 15 years if you list it as an individual asset instead of as startup costs.

You may want to get professional help for the first year of the business.  There's lots more you need to know and it might be worth it to get a pro to help you set everything up.