Schedule C (1st year expenses - No Income )

[Russell1875]

Hello Everyone,

I would like to get some guidance on a potential tax return, I have a client that started a business in 2016 so far he have incurred about $6000 in startup cost like buying software for the business, internet expenses and other costs, however, he have not yet produced any income. He wants to just file a personal return without using the Schedule C since he had no income, however, I was thinking he can still file the Schedule C in order to take the loss in 2017 or is it possible to take the loss in 2016. He is an LLC sole mbr. Any guidance would be greatly appreciated

[ATSMAN]

Hello Everyone,

I would like to get some guidance on a potential tax return, I have a client that started a business in 2016 so far he have incurred about $6000 in startup cost like buying software for the business, internet expenses and other costs, however, he have not yet produced any income. He wants to just file a personal return without using the Schedule C since he had no income, however, I was thinking he can still file the Schedule C in order to take the loss in 2017 or is it possible to take the loss in 2016. He is an LLC sole mbr. Any guidance would be greatly appreciated

Run into these type of situations every few years. You will need to ask the taxpayer to separate the costs incurred before the doors of the business opened to those incurred after that. You will find most of the expenses were incurred prior to the doors opening for business and those have to be amortized. You can deduct $5000 of startup expenses. Operating expenses after business opened doors can go on Sch C as direct expenses or subject to depreciation, S179 etc.

The IRS defines “startup costs” as deductible capital expenses that are used to pay for:

1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures.

2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers.

These expenses can only be claimed if your research and preparation ends with the formation of a successful business.

[Snaggletooth]

Clients are Incredible

He wants to just file a personal return without using the Schedule C since he had no income, however, I was thinking he can still file the Schedule C in order to take the loss in 2017 or is it possible to take the loss in 2016. He is an LLC sole mbr. Any guidance would be greatly appreciated

Russell, not to be hypercritical, but I recommend you get some more training or maybe attend an HRB school before becoming immersed further in preparing taxes.

You have to take control of clients who want to minimize the efforts of filing an accurate return. There are lots of people who simply don't want to go to the trouble or pay you to do a complete return. People who insist on telling you how to do their return need to be let go. They have TurboTax so they can be left to their own device, most likely with disastrous results. In your case, failing to file a loss in 2016 with no other income means that he will not benefit from a Net Operating Loss in 2017.

From your conversation, some of the $6000 needs to be capitalized, and this would fall outside the scope of start-up costs. And if he is an LLC, that means he has established the company with whatever state he operates. That state will be expecting a tax return, as they know he is in business.

[Russell1875]

Russell, not to be hypercritical, but I recommend you get some more training or maybe attend an HRB school before becoming immersed further in preparing taxes.

You have to take control of clients who want to minimize the efforts of filing an accurate return. There are lots of people who simply don't want to go to the trouble or pay you to do a complete return. People who insist on telling you how to do their return need to be let go. They have TurboTax so they can be left to their own device, most likely with disastrous results. In your case, failing to file a loss in 2016 with no other income means that he will not benefit from a Net Operating Loss in 2017.

From your conversation, some of the $6000 needs to be capitalized, and this would fall outside the scope of start-up costs. And if he is an LLC, that means he has established the company with whatever state he operates. That state will be expecting a tax return, as they know he is in business.

Snaggle, I have advised the client already to capitalize and file the Schedule C in order to take the loss in 2017, only wanted to see the suggestions. As far as training, not sure where that comment fit, as I have been trained , my thought process was we are all here to offer assistance to each other. And sometimes it does not hurt to seek additional advice even if trained. However, thank you for your input.

[Russell1875]

Atsman,


Thank you!

[Snaggletooth]

Best Wishes

Russell, no personal insult was intended. You are correct that the forum is for sharing. Thank you for your gracious response.

Snag -

[taxea]

Just as an aside...I wouldn't recommend HRB training in my state. Their computer tech teaches the classes.

[ATSMAN]

Just as an aside...I wouldn't recommend HRB training in my state. Their computer tech teaches the classes.

Their training years back was done by a senior preparer or the manager of the store and it was really good. Students had to learn how to do the return in paper first before they were allowed to use their computer software. Now most of it is online and the quality of training has gone down.