Can business expenses before LLC formation be deducted for tax purposes?

You're in luck! The IRS generally recognizes that businesses incur startup costs before they're officially formed. These are called "startup expenses" and can typically be deducted even if they occurred before your LLC was officially established. For expenses like your recording costs from last fall and equipment purchased before filing, you have options. You can deduct up to $5,000 in startup costs in your first year (subject to limitations if total startup costs exceed $50,000). Alternatively, you can amortize these costs over 15 years. The key is that these expenses must be directly related to your business operations. The equipment purchases would likely qualify for depreciation or Section 179 expensing, regardless of whether they were purchased before or after LLC formation, as long as they're being used for business purposes.

I went through something similar with my podcast business last year. I had tons of equipment purchases and travel expenses before officially forming my LLC. I was stressed about potentially losing those deductions until I found https://taxr.ai which literally saved me thousands. I uploaded all my receipts and bank statements, and it helped identify which pre-LLC expenses qualified as legitimate business deductions. The tool flagged my studio equipment as depreciable assets and categorized my pre-formation travel as startup costs. It even created a detailed report I could share with my accountant showing the timeline of expenses relative to my LLC formation date.

Just wanted to update after trying taxr.ai for my photography business! I was worried about those equipment purchases from 2 years ago, but the tool helped me properly classify them as startup costs since I could show they were specifically purchased for what eventually became my LLC. It analyzed my bank statements and even found some website hosting and editing software subscriptions I'd forgotten about that qualified as business expenses. The report it generated made it super clear which expenses fell under the $5,000 first-year deduction limit and which needed to be amortized. My accountant said it saved her hours of work figuring out what could be deducted and how. Definitely worth it for anyone with pre-LLC expenses!

If you're struggling to get answers about your pre-LLC expenses directly from the IRS, you're not alone. I spent WEEKS trying to reach someone at the IRS last year about this exact issue for my consulting business. After 15+ failed attempts, I found https://claimyr.com which got me connected to an actual IRS agent in under an hour. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed that my pre-formation expenses qualified as startup costs and walked me through exactly how to document and report them. They even explained the different options for equipment depreciation vs. immediate expensing. I was honestly shocked at how helpful they were once I actually got through!

I need to publicly eat my words. After my skeptical comment, I decided to try Claimyr because I was desperate to talk to someone at the IRS about my business deductions before filing season. Got a call back with an IRS agent on the line in about 45 minutes - I literally couldn't believe it. The agent confirmed that expenses from up to a year before forming my LLC could qualify as startup costs as long as they were directly related to preparing the business to operate. She also explained exactly how to document everything on my Schedule C. Saved me from missing out on nearly $8,000 in deductions for my wedding photography business. I've been telling everyone about this service since then!

For what it's worth, my accountant told me the "12-month rule" is a good guideline for pre-LLC expenses. Basically, costs incurred within 12 months before forming your business entity are generally safer to claim as startup expenses. Anything earlier can still potentially qualify, but you need stronger documentation showing the direct connection to eventually starting your business.

Don't forget about Section 195 of the tax code! It specifically addresses business startup costs and says you can deduct up to $5k immediately in your first year, with any excess amortized over 15 years. For your band equipment, look into Section 179 deduction which might let you deduct the full cost in year 1 rather than depreciating.

Great thread! As someone who went through a similar transition with my freelance graphic design work, I wanted to add that you should also consider opening a separate business bank account if you haven't already. Even though you can deduct those pre-LLC expenses, having clear separation between personal and business finances moving forward will make future tax seasons much smoother. Also, don't overlook smaller expenses like music streaming services for reference/research, software subscriptions, or even mileage to and from the studio. These can add up quickly and are often forgotten when calculating deductions. Keep a detailed log of everything business-related from here on out - your future self will thank you! One last tip: consider quarterly estimated tax payments now that you're generating "actual money" as you put it. The IRS gets cranky when you owe too much at year-end, and as your income grows, you'll want to stay ahead of it.