September 17, 2016

Can A Single Member LLC Elect To Expense Organizational Costs On Their Individual Tax Return?

When an individual incurs organizational costs while setting up their single member LLC, are they able to elect to amortize and/or expense organizational costs through the Schedule C (1040). My research seems to indicate this option is only available to corporations, partnerships, and trusts.

Answer

My research did not get a clear answer, however, the general principal is that business expense deduction are the ordinary and necessary expenses related to running a business.

Incorporating a business is necessary and ordinary–millions of businesses are incorporated–so I don’t see how the IRS could object to the business expensing organizational costs.

Particularly in a Schedule C situation, you can take all business deductions for unincorporated businesses (sole proprietorships), so either you can take it “individually” or through the LLC.

Because the LLC’s taxes are passed through regardless, the total tax you pay is the same provided you take the deduction once–either as an a business expense when your business was unincorporated, or as a business expense when the business was incorporated.

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