Forums: Discussions for entrepreneurs and small business.

In 2006 we were in the process of starting up a business.  We still are in that process.  In 2006 we got our LLC, and we have spent money on used equipment, and money on repairing that equipment.  We also had non-equipment business expenditures, but the equipment purchase of $16,000 was about 77% of our 2006 business spending.

My question is, would we be able to claim these 2006 start-up expenditures on our 2007 taxes when our business will be up and running? 

Perhaps I need to be refered to a quick online source for this simple question.  We look forward to having a professional tax specialist do our taxes for our business.  At this time I`m just trying to figure out for which year we will need her/him.

Thank you for any help you may offer..

Claim all of your cash expenses in 2006 for 2006.  Use straight cash accounting.  Even though the equipment might be depreciable over time I`d argue that the business is uncertain and that this should be a start-up expense.  I`m not a CPA but this would seem to make the most sense.  I`m sure you could read up online to learn more.   

-------------------------

Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

Go to turbotax.com or irs.gov and search through their tax info ... I`m pretty sure you must claim them now (2006 taxes) but that they carry over until you have a profit to deduct them from. I know it always asks me about last year`s carryovers.

Good point.  I assumed Cheezi had day job earnings to reduce taxable income.   

-------------------------

Travis Tschepen
Hibachi Bros. LLC

--My goal in life is to be as good of a person my dog already thinks I am.--

Hi there,

Your expenses should be matched in the same year it is incurred.  However, you will not totally allocate them as an expense in that same year.  You will have to adjust your accounting books as a credit to cash and debit to your equipment and plant fixutres (fixed assets).  You will need to use a straight line method to depreciate and expense them for the life of your company.  At the end of each year or at the time of filing you will use the double declining method to decrease more of your taxable income and to pay less taxes.  Be sure to keep track of all start up costs or expenses including supplies or admin costs.

Bree

One other thing i forgot to mentioned, you will need your tax professional for both years.  He should be aware of the accounting method.  It is best not to use the straight cash method since it only benefits you at that moment of time.  You will have to report or amend your 2006 annual return for the company if you have not include this expense.

Bree

"You will need to use a straight line method to depreciate and expense them for the life of your company." 

Correction, the life span that is suggested by IRS, see pub 946.

see http://www.irs.gov/pub/irs-pdf/p946.pdf page 33