Claiming an LLC Tax Write-off before the LLC IS created

[Robert H Hilbert]

I am a beginner am reading my 1st R/E book (by Brandon Turner), and building my goals and plan. Can I claim LLC/S Corp expenses, such as classes/examination to get a R/E broker license, if I incur them before I create the LLC or S Corp?

[Michael Plaks]

@Robert H Hilbert

The answer to your question has nothing to do with forming an LLC. It has to do with determining whether or not you have started your business.

It is not a black-and-white determination, but here's how to think about it. A restaurant has not started its operation until it's ready to service customers. Obviously, there're a lot of expenses prior to that day, but they are not deductible. Instead, they are treated as start-up costs and become deductible once the business starts.

When I say deductible, it depends on the amount. Up to $5k of start-up costs is deductible right away, and the rest is spread over 15 years, which is technically called amortization.

The expenses you described are most likely start-up costs not deductible until next year when you start your business. However, it is possible that your business has already started or will start in the remaining two weeks of the year. For instance, if you make your first offers in December, your business will have started in December.

As I mentioned, this area is subjective, so if you want to be sure, seek professional advice. Otherwise, I recommend you stay conservative aka safe and do not claim these expenses in 2020. Keep in mind that even if you do qualify, claiming a business with zero income yet substantial expenses is an IRS audit flag.