How to File Expenses Before an LLC Is Formed | Legal Beagle

How to File Expenses Before an LLC Is Formed

Written By
Carter McBride
Carter McBride
Jul 9, 2011
2 minute read

An LLC is a type of business entity -- a limited liability company. However, it is important to note the Internal Revenue Code does not recognize LLCs as a business entity, so it is a disregarded entity. As you are starting the business, the most likely scenario is you will have a sole proprietorship. This will also be how you file your taxes, so you need to put the business on your Schedule C. Starting costs are treated differently then normal expenses.

Add together all of your start-up costs before you start your business. For example, assume you have $20,000 of start-up costs.

Subtract $5,000 from your start-up costs. Then, put $5,000 as an "Other Expense" on your Form 1040 Schedule C. Label the expense as start-up costs. In the example, $20,000 minus $5,000 equals $15,000. This is your amortizable costs.

Divide your amortizable costs by 180 months. In the example, $15,000 divided by 180 months equals $83.34 a month. This is your amortized expense per month.

Multiply the number of months your business was active during the year by your amortized expense per month to calculate your amortization expense. Report this amount as an "Other Expense" on your Form 1040 Schedule C. In the example, assume you started forming the business in May and began operations in September; you would multiply the amortization period by 4 months. This is from September to December. In the example, $83.34 times 4 equals an amortization expense of $333.36.

Write and attach a statement to your tax return with the following information: a description of the business, a description of the costs, the month the business became active and that you used 180 months for amortization.

References

Carter McBride

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride…

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