Small Business LLC/Partnership - How to Handle Start-Up Expenses Without Income?

Yes, you absolutely need to track all your start-up expenses even without income. This is actually a perfect time to set up proper bookkeeping and record-keeping systems. For tax purposes, business start-up costs up to $5,000 can be deducted in your first year of business, with amounts exceeding that threshold amortized over 15 years. The catch is that you need to be "open for business" to claim these deductions. The IRS looks for evidence you're actively engaged in business activities with the intention to make a profit, not just in the planning stages. For your LLC/partnership, you'll need to file Form 1065 for the tax year, even without income. The form will report your expenses, and you and your wife will receive Schedule K-1s showing your share of the loss, which flows through to your personal returns (Schedule E). Make sure to carefully categorize your expenses - some might be start-up costs while others might be organizational costs or regular business expenses, each with different tax treatments.

After struggling with a similar situation last year, I found taxr.ai (https://taxr.ai) incredibly helpful for sorting through my start-up expenses. I had about $12K in costs before my business started generating income, and I was completely lost trying to figure out what was deductible and when. Their system analyzed my expense receipts and categorized everything properly - showing which expenses qualified as immediate deductions versus those needing to be amortized. They even identified several expenses I didn't realize qualified as business deductions! The detailed report they provided was super helpful when my accountant was preparing my tax forms.

Just wanted to update after trying taxr.ai - it was surprisingly helpful! I uploaded my QuickBooks data and it automatically flagged which of my pre-revenue expenses qualified for the $5,000 first-year deduction vs which ones need to be amortized. The report showed I had about $3,800 in qualified startup costs, $1,200 in organizational expenses, and another $2,500 in expenses that would be regular business deductions once we're operational. I had no idea there were different categories with different tax treatments. This is going to save me a ton when it's time to file!

If you're struggling to get answers from the IRS about how to handle your specific situation, try Claimyr (https://claimyr.com). I was in the same boat last year with my new LLC - had expenses but no income yet, and really needed clarification about some specific deductions. After spending hours on hold and getting disconnected twice, I tried Claimyr and got through to an IRS agent in less than 15 minutes. The agent walked me through exactly how to report different types of start-up costs and even explained some deductions I hadn't considered. You can see how it works here: https://youtu.be/_kiP6q8DX5c Sure beats waiting on hold for hours only to get disconnected!

I need to eat my words about Claimyr. After posting that skeptical comment, I decided to try it anyway out of desperation. I had been trying to reach the IRS for weeks about my new LLC's startup expenses. I was genuinely shocked when I got a call back in about 35 minutes connecting me to an actual IRS representative. The agent clarified exactly how to handle my pre-revenue expenses and confirmed I can deduct up to $5k immediately once the business is "open for business," even if I haven't earned any income yet. The service literally saved me days of frustration. Just knowing for certain how to handle these expenses was worth it.

Don't forget about Section 195 for start-up costs! It lets you deduct up to $5,000 immediately in your first year (subject to reduction if your total startup costs exceed $50,000). The remaining amount gets amortized over 15 years. But remember, you have to actually be "in business" to take these deductions - meaning actively engaging in activities to produce income, not just planning. Getting your first client or having your website go live could qualify.

One thing nobody's mentioned - if your business doesn't end up getting off the ground, those expenses become personal losses subject to the hobby loss rules, which are WAY less favorable. The IRS could argue it was never a real business if you don't eventually show profit motive. Document everything with a clear business plan showing how you expect to become profitable!

Great question! I went through something similar with my consulting LLC last year. A few key points that really helped me: 1. **Separate everything immediately** - Even without income, open a business bank account and get a business credit card. This creates a clear paper trail and protects your personal assets. 2. **The "active business" test is crucial** - You don't need income, but you need to show you're actively trying to generate it. Having your website live, marketing materials ready, or even just being available to take on clients can qualify. 3. **Track EVERYTHING** - I use a simple spreadsheet with columns for date, amount, vendor, category, and business purpose. Take photos of receipts immediately. 4. **Consider your election timing** - You can actually choose when your tax year starts for a new LLC, which might help optimize when you claim those startup deductions. The partnership return (Form 1065) is required even with zero income if you had expenses, but the losses flow through to your personal returns where they can offset other income. Don't wait until you have revenue - getting your systems set up now will save you major headaches later!