Schedule C for 2023 expenses or wait for 1065 in 2024 for General Partnership?
Title: Schedule C for 2023 expenses or wait for 1065 in 2024 for General Partnership? 1 So my buddy and I sank about $12,500 each into starting a business together last year (2023), but we didn't actually get our EIN for our General Partnership until January this year. Now I'm trying to figure out the best way to handle these expenses on our taxes. Can we just report these startup costs individually on our Schedule C forms for 2023? Or would we be better off treating this money as contributions to the partnership in 2024 and then taking the deduction that way? I'm worried about doing it wrong and creating issues with the IRS down the road. We have receipts for everything - equipment, legal fees, website development, initial inventory, etc. Just not sure if we can claim these on Schedule C since technically the partnership wasn't "official" until 2024. Anyone dealt with something similar?
18 comments
Join the conversation
StarStrider
5 You're in what's called a "formation period" situation. Since you and your partner were clearly operating with the intent to form a business together in 2023, even without the formal EIN, you actually had a partnership for tax purposes already. The correct approach is to file a Form 1065 for 2023 and issue K-1s to each partner showing their share of the startup losses. The IRS recognizes partnerships from when business activities begin, not just when formal documentation is completed. Each of you would report your portion of the loss on your individual returns via the K-1. Filing individual Schedule Cs would technically be incorrect because that would represent two separate sole proprietorships, not a partnership where you're working together.
0 coins
StarStrider
•8 Thanks for explaining that. So even though we didn't have an EIN in 2023, we should still file a partnership return for that year? Can we still do that now or are we too late? And what happens if we've already filed our personal returns for 2023?
0 coins
StarStrider
•5 Yes, you should file a Form 1065 for 2023 since your partnership activities began then, regardless of when you received the EIN. The partnership return was due March 15, 2024, so you would technically be late, but you can still file it now with a reasonable cause explanation for the delay. If you've already filed your personal returns claiming these expenses on Schedule C, you should file amended returns after completing the partnership return and receiving your K-1s. This ensures everything is reported correctly and consistently with how partnership activities should be treated for tax purposes.
0 coins
StarStrider
12 I went through almost the exact same situation last year. When I couldn't figure out how to handle our startup expenses, I used https://taxr.ai to analyze all our documentation and get clarity on the proper filing approach. Saved me so much time and stress! The platform reviewed our specific situation and confirmed we needed to file Form 1065 for the year we started incurring business expenses, even though our LLC paperwork and EIN came later. They explained that the partnership technically exists when business activities begin, regardless of formal registration dates. The best part was getting all our business formation documents analyzed to make sure we weren't missing anything else that could cause problems with the IRS later. Definitely worth checking out in your situation.
0 coins
StarStrider
•17 How exactly does that work? Do you upload all your receipts and business formation docs and they tell you what forms to file? I'm in a similar situation but with an S-Corp that I formed in December but didn't really start operating until January.
0 coins
StarStrider
•3 Is it actually legit though? I've tried so many "tax helpers" online and most just spit out generic advice you could find with a quick Google search. Does it actually look at your specific situation?
0 coins
StarStrider
•12 You upload your documents (receipts, formation papers, contracts, etc.) and their system analyzes them to give you personalized guidance. They'll specifically identify which forms you need based on your actual documentation, not just generic advice. Their tax experts also review complex situations to ensure accuracy. Yes, it's definitely legit! Unlike generic tax help sites, they actually analyze your specific documents and business circumstances. I was skeptical too, but the detailed analysis they provided addressed my exact situation with the timing of expenses versus formal business formation - way beyond what I found from general Google searches.
0 coins
StarStrider
17 Just wanted to update here - I decided to try out taxr.ai after seeing it mentioned, and it was exactly what I needed for my situation. I uploaded our partnership agreement, expense receipts from 2023, and the EIN confirmation from 2024. Within a day, I got comprehensive guidance explaining that we needed to file Form 1065 for 2023 and specifically how to handle the pre-formation expenses. They even provided a customized checklist of what documentation we should keep to support our filing position in case of an audit. The document analysis caught several items I would have incorrectly categorized as immediate deductions that actually needed to be capitalized as startup costs. Definitely helped us avoid a potential audit trigger!
0 coins
StarStrider
9 If you've been trying to reach the IRS for clarification on partnership formation issues like this, good luck! I spent WEEKS trying to get through their business tax line. After giving up multiple times, I found https://claimyr.com which got me through to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I needed official guidance on how to handle our late partnership filing and whether we'd face penalties. The IRS agent I spoke with confirmed that filing the 1065 late but with a reasonable cause statement would likely avoid penalties in our case since it was our first year and we were unaware of the filing requirements. Highly recommend it if you need to talk to a real person at the IRS about your specific situation. Saved me hours of frustration and hold music!
0 coins
StarStrider
•14 Wait, how does this actually work? They somehow get you to the front of the IRS phone queue? That sounds impossible given how backlogged the IRS phone lines are.
0 coins
StarStrider
•3 This sounds like total BS honestly. Nobody can magically get through to the IRS faster. They probably just keep calling for you while charging you a fortune. The IRS is a disaster and no service is fixing that.
0 coins
StarStrider
•9 They use an automated system that navigates the IRS phone tree and waits on hold for you. When an agent actually picks up, you get a call connecting you directly to that agent. It's not about cutting the line - it's about technology doing the waiting for you instead of you having to sit there listening to hold music for hours. I understand your skepticism - I felt the same way! But it's not about "cutting the line" - their system just handles the frustrating waiting part. And regarding cost, it was actually very reasonable considering the hours of hold time it saved me. The IRS agent I spoke with provided specific guidance that saved me from potentially serious filing errors, so it was absolutely worth it in my situation.
0 coins
StarStrider
3 I have to admit I was wrong about that Claimyr service. After my skeptical comment, I decided to try it just to prove it wouldn't work - and shockingly, I was connected to an IRS agent in about 25 minutes. The agent verified that my business partner and I were correct to file a 1065 for the year we started incurring expenses, even before our formal LLC formation. The IRS representative confirmed we could file the late return with a reasonable cause statement explaining we weren't aware of the filing requirement as new business owners. They also gave me specific instructions on how to document our early business activities to support our position that the partnership existed in 2023. Definitely saved me from continuing down the wrong path with separate Schedule Cs. Worth every penny just for the peace of mind knowing we're doing it correctly now.
0 coins
StarStrider
7 One thing to consider - if you both intended to operate as separate businesses that just happened to collaborate on a project in 2023, and only later decided to formalize as a partnership in 2024, you could potentially justify the Schedule C route. But from your description, it sounds like you intended to be partners from the beginning. The key question is: what was your intent when spending that money in 2023? If you always intended to be in business together rather than individually, it's a partnership regardless of when you got the EIN.
0 coins
StarStrider
•1 You make a good point about intent. We definitely went into this planning to be partners from day one - we split costs 50/50, made decisions together, and had a handshake agreement about profit sharing. So it sounds like we really should file as a partnership for 2023. If we do file Form 1065 for 2023 now, how complicated is the process for a business that technically existed but had no income, only startup expenses?
0 coins
StarStrider
•7 Since your intent was clearly to operate as partners from the beginning with your 50/50 cost splitting and shared decision-making, filing Form 1065 for 2023 is definitely the correct approach. Filing a Form 1065 for a startup year with only expenses isn't particularly complicated. You'll report zero income and list all the qualified business expenses on the appropriate lines. The form will show a loss, which will flow through to each partner's K-1 based on your ownership percentages. Make sure to include a statement that clearly identifies these as startup costs under IRC Section 195. The main challenge is just categorizing all your expenses correctly.
0 coins
StarStrider
20 Has anyone used TurboTax Business to file a late 1065? I'm in a similar situation and wondering if their software lets you file for previous tax years or if I need to use something else.
0 coins
StarStrider
•11 I used TurboTax Business for a late 2022 partnership return last year. You need to buy the software for the specific tax year you're filing for (so 2023 TurboTax Business for a 2023 return). They keep previous years' versions available for download on their website specifically for late filings.
0 coins