Author Topic: Do business startup costs show up on personal taxes?  (Read 615 times)

SomedayStache

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Do business startup costs show up on personal taxes?
« on: February 02, 2021, 02:37:56 PM »
Ack! The internet has failed me - or I just don't know what to search for.

My husband went into business last year with some family members. The business isn't profitable. It's quite likely that they will be throwing up their hands and trying to get out of it within the next few months.

Last year he put in $x,xxx of our own money to help start the business (his family has also put in their own additional money).

Will this impact our personal taxes at all?

SeattleCPA

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Re: Do business startup costs show up on personal taxes?
« Reply #1 on: February 02, 2021, 02:41:55 PM »
Startup expenditures should be tracked. You can't deduct them until the business actually starts though. So you may accumulate them one year and deduct the next.

If your spouse is a co-owner in some venture with others, this should all be addressed on the entity tax return.

More details here: https://www.irs.gov/publications/p535#en_US_2019_publink1000208919

SomedayStache

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Re: Do business startup costs show up on personal taxes?
« Reply #2 on: February 02, 2021, 02:47:30 PM »
Thanks for such a quick reply!

I have read that section before and it seems to be only referring to the business taxes not personal?

Really I'm just itching to get our personal taxes filed and want to know if I have to wait till they get all the mess of the business stuff squared away with their accountant.

Reynold

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Re: Do business startup costs show up on personal taxes?
« Reply #3 on: February 03, 2021, 10:52:43 AM »
It depends on the type of business entity they have, but it is likely that it is in some form where the profits and (in this case) losses would "flow through" to your individual return.  Thus I would hold off on filing taxes yet, but not because they are still deciding what to do this year, but because last year's expenses should be appearing on your personal returns.  I would suggest getting that sorted out before worrying about what they do this year, which will be important for your 2021 taxes, filed in 2022. 

Hopefully your husband has documentation to show that this was a real attempt to start a business, and not a hobby, you can't deduct hobby losses.  You don't need to provide that with the tax return, but should have it if audited. 


phildonnia

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Re: Do business startup costs show up on personal taxes?
« Reply #4 on: February 03, 2021, 01:29:44 PM »
Is it a partnership?  If so, then there should be a K-1, and you can deduct the business losses on Schedule E.  Subject to the Passive Activity Loss rules, of course.

SomedayStache

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Re: Do business startup costs show up on personal taxes?
« Reply #5 on: February 05, 2021, 06:58:02 AM »
They formed an LLC with multiple ppl and (from googling) it seem that does make it a partnership (?)

If so, hopefully we will eventually get a K-1 form - and can apply some of those losses to our personal income. That would be great - though I've mentally just counted all that money as spending. Normally I've already filed our taxes by now so this will be an exercise in patience for me lol.

Side note: highly recommend avoiding business ventures with family. Please do not make our mistake!

phildonnia

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Re: Do business startup costs show up on personal taxes?
« Reply #6 on: February 05, 2021, 03:55:52 PM »
They formed an LLC with multiple ppl and (from googling) it seem that does make it a partnership (?)

If so, hopefully we will eventually get a K-1 form - and can apply some of those losses to our personal income. That would be great - though I've mentally just counted all that money as spending. Normally I've already filed our taxes by now so this will be an exercise in patience for me lol.

Again, if you're not a "material participant", then make sure you follow the Passive Activity Loss Rules regarding deducting losses from your personal income.  If you're "just the money", then you usually must suspend the loss for taxes until you either completely sell out, or have some income from the business to offset it.

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Side note: highly recommend avoiding business ventures with family. Please do not make our mistake!

I believe that's a widely held opinion.

startbyservingothers

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Re: Do business startup costs show up on personal taxes?
« Reply #7 on: February 06, 2021, 11:24:09 AM »
I'm concerned about whether this family member plans to or understands the paperwork involved for a partnership.  Do they actually plan to file the business in a manner that shows you are an owner,  or do they just plan to hand you some money if/when the business ever profits?

For a typical sole prop business, all you have to due is give your tax prep person the information at the end of the year and file the information on a schedule C on the personal return.  - The business does not have to file it's own return unless the owner chooses to.

For a partnership they need to apply with the IRS for an EIN.  Then at tax time the business gets it's own tax return done as a partnership.  Then once you have a copy of the businesses return you can file your own taxes which will take into account your share of ownership. (See loss limitations others have posted.) 
Let me say this again more clearly. - You will not be able to file your taxes until after the business does.  Hopefully you trust this member to get things done quickly.  Many firms in my community won't take new appointments for business returns after mid February because they are already booked for the year.  They will simply help file an extension, and handle it sometime during summer or fall.


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SomedayStache

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Re: Do business startup costs show up on personal taxes?
« Reply #8 on: February 08, 2021, 01:02:01 PM »
Then at tax time the business gets it's own tax return done as a partnership.  Then once you have a copy of the businesses return you can file your own taxes which will take into account your share of ownership. (See loss limitations others have posted.) 
Let me say this again more clearly. - You will not be able to file your taxes until after the business does. 

Yes - this is the situation.

For the business my husband is providing 95% of the manual labor (therefore I'm guessing he's a material participant) and has also put up some $.
It doesn't really matter if I understand the ins and outs of the business tax side of things as they have an accountant who they have been working with.

I'm 100% hands-off in regards to the flaming turd that is their business venture, but I do 100% of my family's personal finances. Husband and his business partners were unaware that we would need info from the business accountant to do our personal taxes.  But we do. Now I just wait and hope that I do not have to file an extension for our personal taxes because we are waiting on business info.