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View Full Version : New Business: No sales this year, but have expenses => Will I have problem with IRS?



vedernikov
05-31-2011, 09:07 PM
Hello!

I have set up LLC for the purpose of running my future real estate business (renting apartments). I know for sure that I will not close on any property this year. However, now when I am looking for a property to buy I am accumulating some expenses - driving around (rented car), fees for different services, etc. I also planning to buy some construction tools and equipment which I will need to renovate that property (anticipated).

Since I will have no income whatsoever for this year (thru this LLC) will I be able to deduct all these expenses without drawing too much of bad attention from IRS? :confused:

What paperwork do I have to have to prove that all this expenses are related to future business?

Thank you for your advices!

ArcSine
06-01-2011, 09:11 AM
A great majority of start-ups incur expenses before the revenue stream kicks in. IRS has no problem with that. What you may have heard concerns "businesses" which are really nothing more than someone trying to deduct the expenses they incur while enjoying their hobby, for which they have no real profit intention.

Be aware that some or all of your tools & equipment purchases may, depending on their nature, be items you'll have to depreciate for tax purposes, rather than immediately deduct. It's true that there is a "first year writeoff" provision that applies to many asset purchases, but it's also true that its availability is curtailed in years involving net losses. It's pretty basic stuff and your tax advisor can paint in the details.

Congrats, and good luck with your new venture!

tylerhutchinson
06-01-2011, 12:39 PM
You should be good. To avoid any possible flagging you may want to go through a tax professional.

Also just as a side note, if you do this business out of your home you can also deduct part of your mortgage/rent, electricity, internet, and any other expenses that you use towards your business in your home.

jamesray50
06-02-2011, 07:07 AM
Not a problem. You have to incur expenses to start up a business. Same thing with me. I had expenses but no income for last year.

lccglobals
06-02-2011, 08:47 AM
All seems to be good there should not be any problem and if you stil think there is some difficulties, then Take a good advise from an expert or business solution providers who will assist you through Auditing, accounting, taxation and all you need. best of luck

Evan
06-04-2011, 08:54 PM
Hello!
I have set up LLC for the purpose of running my future real estate business (renting apartments). I know for sure that I will not close on any property this year. However, now when I am looking for a property to buy I am accumulating some expenses - driving around (rented car), fees for different services, etc. I also planning to buy some construction tools and equipment which I will need to renovate that property (anticipated).

Since I will have no income whatsoever for this year (thru this LLC) will I be able to deduct all these expenses without drawing too much of bad attention from IRS? :confused:

What paperwork do I have to have to prove that all this expenses are related to future business?


As noted, most businesses start with a loss.

Keep track of your mileage (if you use your own vehicle), or get receipts from your car rental company when you drive around. These would be deductible in the year incurred. Construction tools and equipment may be deductible, but you should probably capitalize all of these costs. If you haven't used them for their intended use (for fixing up a property), they likely aren't depreciable until you acquire a property.

Fees for professional services are likely related to getting started and would also be amortized as a start-up cost. The first $5,000 of these expenses are deductible on your tax return, with anything in excess being capitalized and amortized over 15 years. If it's over $50,000, it all needs to be capitalized and amortized in accordance with Section 195 of the Internal Revenue Code.

If you plan to have multiple properties, I strongly suggest keeping meticulous records, especially those relating to the acquisition of your property and all improvements, etc. made. I also cannot stress the importance of finding a competent tax professional, preferably a CPA, who can make sure comply with all your tax requirements.