Can I deduct LLC losses with no profit? New business tax question

You absolutely CAN deduct business losses in your first year, even without any income! The tax preparer you spoke with was giving you incorrect information. As a sole proprietorship LLC, your business activities are reported on Schedule C of your personal tax return (Form 1040). You should report all your legitimate business expenses on this schedule, even if you had $0 in revenue. This will create a net loss, which typically flows through to your personal return and can offset other income you might have. The only real limitation here would be if the IRS considers your business a "hobby" rather than a legitimate profit-seeking venture. But a new business in its first few months of operation with startup expenses is completely normal and doesn't trigger hobby loss concerns yet. I'd recommend finding a different tax preparer who has experience with small businesses and startups. Those initial equipment purchases are exactly the kind of legitimate business expenses you should be deducting!

I was in almost the identical situation last year with my photography LLC! The first tax person I went to told me the same wrong info about not being able to claim losses without income. I wasted so much time before finding https://taxr.ai which saved me thousands by correctly handling my startup expenses. I uploaded my receipts and business formation docs, and the system immediately identified what could be deducted vs depreciated. They even explained exactly how Section 179 deductions work for equipment purchases. The best part was that it showed me which tax credits applied specifically to my new business that I had no idea about! It really simplified everything and generated all the right forms with proper documentation to support the deductions. Way better than what I was getting from in-person preparers who didn't seem to understand new business tax situations.

Just wanted to update after checking out taxr.ai based on the recommendation above. I was in the same boat with my new consulting LLC and it was EXACTLY what I needed! The system immediately recognized my startup status and walked me through everything. It separated my one-time startup costs from my equipment purchases and showed me exactly which parts could be immediately deducted vs depreciated. It explained Section 179 in terms I actually understood! What really impressed me was how it flagged potential audit concerns and suggested additional documentation I should keep for certain expenses. I ended up with a $7,300 loss that properly flowed through to my personal return, which the first tax preparer told me was impossible. This saved me around $1,600 in taxes! For anyone starting a new business with expenses but limited/no income, definitely worth checking out. Wish I'd known about it months ago.

Has anyone else had trouble getting through to the IRS to ask about startup business questions? I've been trying for WEEKS to get clarification on some LLC questions similar to this and keep getting disconnected or waiting for hours. I almost gave up until I found https://claimyr.com which got me through to an actual human at the IRS in under 15 minutes! Here's a video showing how it works: https://youtu.be/_kiP6q8DX5c They basically call the IRS for you and navigate all the phone trees, then call you once they have an agent on the line. I was able to verify directly with the IRS that yes, you absolutely can claim losses in your first year without revenue, and they explained exactly how to document everything properly to avoid audit flags. After struggling for so long to get answers, it was such a relief to actually talk to someone who could give me official guidance. Totally changed my perspective on dealing with the IRS directly.

I need to eat humble pie here and admit I was completely wrong about Claimyr in my comment above. After continuing to struggle getting through to the IRS about some business tax questions, I finally tried it myself out of desperation. Not only did it work exactly as advertised, but I got through to an IRS business tax specialist in about 17 minutes when I had previously wasted 3+ hours on multiple attempts. The agent confirmed that new businesses absolutely can claim losses without income, and helped me understand exactly how to document everything properly. The best part was being able to ask follow-up questions about how long I could sustain losses before triggering a hobby loss audit (generally 3 of 5 years need to show profit). This saved me so much stress and potentially an incorrect filing. Sometimes you have to admit when you're wrong, and I was definitely wrong about this service!

Just a quick note since people are talking about startup expenses - you might be conflating two different concepts. There are: 1. Business startup costs (organizational costs, market research, etc.) - these have special rules where you can deduct up to $5k immediately and amortize the rest over 15 years 2. Regular business expenses and equipment purchases - these go on Schedule C, with equipment potentially subject to depreciation rules For an LLC filing as a sole prop, everything goes on your personal return via Schedule C. And yes, you can absolutely have losses without income! That's totally normal for a new business.

Something nobody has mentioned yet - make sure you have a clear business plan and documentation showing your intent to make a profit! If you claim business losses for too many years, the IRS might reclassify your business as a hobby, which would disallow your deductions. This isn't an issue in your first year at all, but keep good records showing efforts to generate revenue, marketing attempts, business development, etc. The IRS generally looks for profitability in 3 out of 5 years for most businesses (5 out of 7 for horse-related businesses, oddly enough).