We began a small business two years ago as an LLC. We are just getting started and our production is not even running yet. We have made no income from our business yet, but we have put money into all the equipment and supplies etc. How do we file taxes for an LLC that made no money?
The question of how to file taxes for an LLC (Limited Liability Company) with no income comes up often and filing requirements will vary by state, but generally, LLCs that elected to be taxed as a sole proprietorship or general partnership doesn’t have to file a tax return with the IRS. Some states however, will require a sole proprietorship or partnership to file a tax return, even for a pass-through entity so be sure to verify if your state does. An LLC that elected to be taxed as a corporation will have to file a tax return regardless of business activity. While an LLC is not required to file a state and federal income tax return as a sole proprietor or partnership may be making a costly mistake.
Many LLCs and yours sound like it falls into this category, will have start-up expenses when starting. Expenses may have come from the purchase of equipment and a variety of supplies. Some expenses can be deducted in the year they were realized like the supplies while other deductions like depreciation of equipment and amortization expenses will have to be amortized over time.
By not filing a return now you won’t be able to write those deductions off. If you were to file a return, those expenses could be carried forward to reduce income in a future year or reduce your personal income tax return when filing the Schedule C for a sole proprietor or Form 1065 if a partnership. The LLC can elect to be treated like a corporation for taxes by either filing Form 8832 (C corporation) or Form 2553 (S Corporation). With the investment in equipment, this can be very costly.
I want to also remind you that in most states there are additional filing requirements besides taxes like a franchise tax & return or annual report that is due annually. This is separate from filing income taxes and must be filed regardless of business activity.