are my business expenditures deductible?

January 23, 2007 2:01 PM

How can I tell whether or not the expenses incurred by my new LLC, which I'm filing taxes for as a partnership and which is operating at a loss this year, can be claimed by the members as deductible business expenses?

So supposedly filing as a partnership is the usual thing for an LLC, which is fine with me, except that there seems to be one way in which you have to differentiate-- since the members liability is limitted, not all losses of the company can be distributed among and claimed by the members as deductible business expenses.

My business is new this year. It had a lot of startup costs including purchasing a building (which I will depreciate if possible), improvements to the building, and legal fees, and actually hasn't even opened yet so has not made any income. The money for these costs was put in by the members, so the company is not in debt, but is definitely operating at a loss. I am really hoping to be able to apply my share of this loss as a business expense on my personal taxes, because I spent money on my business assuming I would be able to deduct it. How can I tell whether I can deduct this, or which expenses are elligible?

(All the information I could find on the IRS website was that only a professional could answer this question, but I think I understand everything else about my filing process so I am reluctant to go that way.)

thanks!

posted by lgyre to work & money (7 answers total)

I would think you are best served in hiring a tax advisor for a few hundred bucks.
posted by JJ86 at 2:43 PM on January 23, 2007

(All the information I could find on the IRS website was that only a professional could answer this question, but I think I understand everything else about my filing process so I am reluctant to go that way.)

There's a reason the IRS website says that. Get an accountant.
posted by dirtynumbangelboy at 3:08 PM on January 23, 2007

I appreciate the suggestions, but just to clarify in case anyone else has any other ideas, I can't really afford an accountant, so if I can't figure this out I'll probably just not deduct it. (I don't make much money myself, so my taxes are likely to cost less than an accountant would)
posted by lgyre at 4:09 PM on January 23, 2007

A LLC is a pass through entity whereas the profits and/or loses are passed along to the partners, usually proportionally to their share of ownership.

The LLC therefore would never incur a tax libility. You need to file form 1086 for your LLC, you will then report profit or losses on a Schedule-K to each partner.

Feel free to contact me, email is in profile. I am not a CPA.
posted by JujuB at 8:39 PM on January 23, 2007

Disclaimer: I am not an accountant.

I formed an LLC in '06 with one partner. According to my accountant, we cannot begin to deduct those expenses until we have income - we don't have to be profitable, but we have to have at least one customer who has paid us for something.

What JujuB said is correct - the LLC doesn't incur a tax liability, the partners do. There's a lot more going on with this, which involves how much you can deduct during the startup period and how much applies to each partner (based on how much each partner has invested). There's a lot more here that should get you started. (Beware, it's in accountant-speak.)

From what I understand, if the LLC has had no income in the time it has existed, you can't deduct the expenses.
posted by bedhead at 9:27 PM on January 23, 2007

thanks, I think that answers my question. it sounds like each partner can deduct expenses, up to the amount that they had invested. I didn't know about having to have made income first, though-- I'll have to look into that further.
posted by lgyre at 9:59 PM on January 23, 2007

lgyre writes "I appreciate the suggestions, but just to clarify in case anyone else has any other ideas, I can't really afford an accountant"

An accountant is an absolutely necessary business expense. Find a way. Better than getting fucked by the IRS.
posted by dirtynumbangelboy at 5:02 PM on January 25, 2007