Spending Money Oriented Towards A Future Business

[portfoliobuilder]

Hi everyone,

You have all been very helpful, and I am hoping that you have some knowledgeable input on my question today. I intend to start a LLC in May. I wanted to do some planning beforehand, and part of the planning process requires that I buy some software for wireframes, designing, ect. If my LLC was already registered, I believe this software used for my company can be tacked onto payroll and could potentially be a tax deduction even (I may be completely wrong on this, but bear with me please. I am learning). But what about if the business is not already registered or in operation? Can I buy this software today, and then in May add the cost of the software to payroll? I sort of had the idea of writing the cost of the software into the Operating Agreement so that the cost could count as equity. But I am also not sure if this is proper (or reasonable). Any input, solutions or ideas?

[portfoliobuilder]

I have a lot of views, but no responses. No one has any insight to my situation? Maybe I need to reword?
1) If I make any purchases before my business is officially registered, am I able to deduct the costs after the business is registered, or is it too late because I made the purchases with my personal income?
2) Are there work arounds, such as making purchases before my business is registered, but then writing up in the Operating Agreement that the purchases made amount to "x" amount of dollars and that counts towards equity for Members?
3) Is there any point in registering a business 5-6 months before any time is made available to work on the business? Are there monthly fees, or other that would make this unwise? Or, is it the case that there are no fees you just have an inactive business?

That was it.

[vangogh]

Sorry your question fell through the cracks. I think that's partly based on posting it over a weekend and partly because it's regarding questions that most of us probably don't have a great answer to. I'll do my best, though please know I'm not an accountant. I want to answer though to keep the thread active so the people who do know are more likely to see it.

I'm pretty sure you can deduct the purchases even if they were made before you register the LLC. The how is the part I'm unsure of, so I did some searching.

Here's a page I found on the SBA.gov site that talks about deductions for starting a business (http://www.sba.gov/community/blogs/community-blogs/small-business-cents/startup-cost-tax-deductions-%E2%80%93-how-write-expense). It mentions that you can deduct items that were purchases while forming the business, including research material and planning. I'm sure the software you mention would be allowed. The page links to some pages on the IRS site, though I didn't check the IRS pages.

Just because you're setting up an LLC in May, doesn't mean the business didn't start prior to May. You could be running it as a sole proprietor right now, in which case your purchases are already deductible. They'd get included on a Schedule C. In May when you form the LLC you'd be changing business entities, but again there's no reason why that has to be when the business forms. It might complicate how you fill out taxes next year in that you'll be filling out different sets of forms pre and post LLC formation, but there shouldn't be any issue in being able to deduct your purchases now.

If you're nervous you could file for a trade name with your state before making any purchases. If you haven't already done that you can usually do it through the website of the Secretary of State for whatever state you live in. Costs vary, but they usually aren't much and they will be tax deductible.

Hope that helps. I'm sure more knowledgeable people will be by soon enough.

[portfoliobuilder]

**Stares at Vangogh with BIG watery eyes :eek:**

You da man Vangogh, you da man! This is the information I needed. I think I am ready to do this! Thank you for your response. And if anyone else has anything more to add to this, I am ready to listen. Thanks in advance.

[huggytree]

this is an easy one...because i did the same thing

go ahead and buy whatever you need....then count it as 'owner investments' on your quickbooks....basically your selling something you bought personally to the business....when i went into business i had tools and equipment that i bought sometimes years before.....i moved them into my business's shop and credited myself for it

the first year in business i invested $30-40k in rolling stock and equipment.....my taxes that year were like $20 Federal because of it

[vangogh]

You da man Vangogh, you da man!

Glad I could help. Sorry again it took so long to get a response. It happens sometimes.

By the way a lot of all these things that seem really confusing when you're first starting out, especially where taxes are concerned, get a lot easier. Little by little so many things start to fall into place and make more sense.