Discussion:Start-up and Organizational Costs for LLC
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Discussion Forum Index --> Tax Questions --> Start-up and Organizational Costs for LLC
| 16 August 2006 | |
| I was exposed to new territory when a new client walked in my office the other day. I will try to be as concise as I can.
In 2004 the client created two new LLC's (1065) for which 2004 returns were filed(no income/no expense). To this day neither of these LLC's are active businesses. In the meantime however they have each accumulated many organizational, start-up and pre opening expenses. The payment of these expenses has all been drawn from the taxpayer's S-Corp. An additional caveat is that in regards to one of the LLC's much of the organizational/start-up/pre-opening expenses are being reimbursed by the city where the business will be located. This reimbursement arrangement was worked out in order for the business to be established in what has been a suppressed area. (The reimbursement checks are written to the S-Corp) My main question is (for tax purposes) how to go about treating the reimbursement (which is sizeable) when start-up/organizational and pre opening expenses are not deducted until the business becomes active; and at that time they are amortized? The business will not be active until 2007. Further since the 2004 returns were filed (no expenses/no income) with no 195 election being made - will this cause a problem. Additionally returns for 2005 were also filed with no income, however with $800 state tax being deducted as expense (also with no 195 election). Much thanks to anyone who can lend their knowledge on this one. | |
| 17 August 2006 | |
| I would think the reimbursements would simply reduce any capitalized 195 costs that will begin being amortized once business actively begins. I haven't done a 195 election in a couple years, but I don't see how it would be too big a problem if you just elected everything starting in 2006. If a problem arises, you could just amend the previous returns. Actually, I think I read some IRS publication that says you make the election in the year the entity begins its business, but that its also okay to file an election earlier. Sorry I don't have a specific reference right now. | |
| 12 May 2009 | |
| I have a cash basis client that is a bed/breakfast that opened 12/5/08. They incurred various expenses all year during the buildling phase/start up. I believe I have to capitalize all expenses paid until until 12/5/08 (advertising, supplies, linens, accounting, storage, uniforms, licenses, utilities) as either start up costs or organizational expenses. Please tell me if you know/think I can actually expense any of these. I also have to capitalize interest during the construction as part of the building. I'm wondering about the flood insurance, excess wind insurance etc. Is the insurance deductible as a current expense, a portion start up and a portion expense (even though cash basis) or is all of this insurance expensed this year? Obviously, it's a sizable amount.
I would usually expense linens (and small pictures/decorations), but I'm thinking I should capitalize all as assets, that way I can get the bonus depreciation this year. Then, if they dispose of anything next year, I will write off the asset (I realize the assets will now be subject to state tangible tax, but I think it is still more beneficial for my client to take the depreciation deduction this year.....) I hate that they have to capitalize all these expenses, but from what I've read, that is the proper way of treating all of this. Any advice/confirmation/comment would be greatly appreciated. Thanks in advance! | |
