Deductions Before Forming LLC?
can I deduct classes, travel, etc that all relates to me investing in RE? Even though my LLC is not officially "opened" yet? I am just now sending in my LLC application. Wondering if its worth saving these receipts and figuring out my mileage, etc if I can't use it come tax time.
Thanks,
Ginnie
What legal entity are you forming? The LLC can be, depending on the number of members, a DRE (disregarded entity), partnership, or corporation (association). Its your choice if you file form 8832 and if not its based on the default rules which treat two or more members as a partnership (if at least one member has limited liability), a single member without limited liability as a DRE, and an association if all members have limited liability.
However, prior to setting up the LLC you are treated as sole proprietor and as such you would file a schedule C if you are in a trade or business. The question you need to ask is are you in a trade or business or are you investigating a trade or business? If you are in a trade or business, the expenses “class, travel, etc that all relates to me investing in RE” are deductible even though your LLC is not officially "opened" yet. Under the cash method of accounting, you generally can deduct business expenses in the tax year you actually paid them.
Prior to actually starting a trade or business many business operations incur start-up expenses. These expenses must be capitalized and amortized over 60 months beginning in the month the business (LLC) opens for business. Start-up expenses are costs incurred to investigate and establish a new business, such as undertaking market research, preparing a business plan, registering the business name, obtaining business licenses, satisfying zoning requirements, obtaining legal and tax advice regarding the business form, buying insurance, etc.
I leave the treatment up to you. If you decide to deduct these expenses either currently or ratably over 60 months beginning in the month the business starts, you need to document the expenses.
Hope this helps.
[ Edited by ScipioZama on Date 08/04/2004 ]
thanks so much! I do have a small amount of business expenses going towards office supplies, business cards, etc, but the bulk of the money I've spent so far was for education and I wanted to able to deduct that if possible. I did have a minute to speak to a RE CPA at a RE convention this weekend and he told me there are a series of questions he'd have to ask me to "officially" determine if I was in business.
Thanks!
Ginnie