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Posted by Katie on April 8, 2008, 3:40 pm
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> On Apr 8, 12:56 pm, "removeps-gro...@yahoo.com" <removeps-
>
> >One more thing. That 1k may also be deductible. If you used it to
> >pay for meals, then that might raise eyebrows. What kind of stuff was
> >it? If it was supplies that you now use for personal use (like
> >stamps, plain stationary) then no deduction. And fees you pay an
> >accountant to do your 1120* would also be deductible.
>
> he spent that cash, probably $1k, on computer equipment/services that
> is not used for personal use (ever)
>
> he actually just called me and said his accountant told him that since
> we aren't actually in business (yet?), the money he spent counts as an
> investment and not an expense, and thus is not deductible?
>
> this is getting more and more confusing
>
Oops, I was dutifully editing out the underbrush and managed to push
the "send" button by mistake. Maybe Dick will see the blank post and
delete it. Someday <G>.
The money you spent sounds like organization costs. The LLC can elect
to amortize those costs over 60 months, on a timely filed return. I
believe the election has to be made at the entity level, although I'm
not certain of that. If the election is not made, those costs will
never be deductible until the LLC is dissolved.
The money your associate spent sounds as though it was partly for
equipment and partly for services. The equipment is a capital asset
of the LLC and must be capitalized and depreciated, beginning at the
point when it is placed in service, i.e., when business commences.
The services are probably start-up costs, which you may be able to
deduct currently.
The LLC must file a partnership return (Form 1065) and give each of
you a Schedule K-1 that will tell you what expenses, if any, are
passed through as currently deductible losses. You have to divide all
of these items up in accordance with the LLC's operating agreement,
not in accordance with who paid what.
I would suggest that you and your associate hire his accountant to
handle this for you, since he or she is already familiar with the
facts. He or she can also advise you on how to handle all of these
matters if it is the case that the LLC is not now intended ever to
engage in any business activities. You can't do this by yourself.
Katie in San Diego
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