QUESTION 1: What would be good software for me to use -- Quick Books, Quicken, other? I am a professional programmer.
I would choose QuickBooks. If you need to make your mind - here is a comparison chart - https://www.wellsfargo.com/biz/financial_software/quickbooks/quicken_comparison
QUESTION 2: I am not tax savy. My cash contributions to start the LLC's could be loans or capital paid to my capital account, right? If the LLC's fail, which would give me a better tax write off against my ordinary income -- loans or paid in capital?
You need to be absolutely clear when your business started.
All expenses before the business started are start-up expenses, but expenses after the business started - are operational expenses.
Operational expenses are generally deductible.
Start-up cost - expenses you had before the business started - in general should be amortized over 15 years.
You can write off up to $5,000 in startup costs and another $5,000 in organizational expenses in the year that you start your business - thus in the first year you will deduct 1/15 part of the total expenses - and so on in following years.
If you haven't started the business yet - you may not deduct any start-up cost.
please see more details in the IRS publication 334 - http://www.irs.gov/pub/irs-pdf/p334.pdf
If you sell the business before deducting all of the start-up costs, you may deduct the remaining start-up costs as a loss as allowed by Sections 165 and 195(b)(2).
Let me know if you need any help.
Tax Preparer
Taxes, Immigration, Labor Relations
QUESTION 1: I told the IRS person on the phone when I got my EID's that I started the businesses in August 2009. They asked me what month. I would assume that means August 1, 2009, even though we have no income yet. So all expenses in August 2009 and later would be operational expenses, e.g., LLC filing fees, insurance for cameras and shooting productions, air fare, car rental, etc., Right?
QUESTION 2: You didn't really answer my capital contribution versus loan question. I had to put some money in each of the two LLC checking accounts to open the accounts. What is that money -- my loan to the company, or my capital contribution to my capital account?
REPEAT QUESTION: I have a good ordinary job. The LLC's are on the side for me. If the LLC's fail and go out of business, would I be better off if the money I lost was a loan or capital contribution, or do I even have a choice? I assume the filing fees, airfare, car rental, etc. were operational expenses, which offset future LLC income, but if there is not enough income and we give up, that's some kind of a failed business loss. I'd like to deduct that loss against my ordinary income. (There is ordinary income, long term capital gain, short term capital gain, passive income, etc. all kinds of buckets for categorizing income, right? The kind of failed business loss that would be useful to me would offset my ordinary income.)
That is very important to determine if the business has been started or not because business expenses would be treated as start-up expenses or operational expenses.
Generally - the business is considered as started if there were selling products or services - and have gross business proceeds. If there is no any business income - the IRS might question if the business was started (and if your deductions are correct).
You would need to provide other evidences that the business was started - for instance - you already have products for selling and advertised them.
Th e risk is that the IRS agent would not agree with your arguments and your deductions would be disallowed.
QUESTION 2: You didn't really answer my capital contribution versus loan question. I had to put some money in each of the two LLC checking accounts to open the accounts. What is that money -my loan to the company, or my capital contribution to my capital account?
The money may be treated either way - as a loan or as a contribution. Th e loan is what you expect to get back in short time; the contribution - is what is used for long time - for instance - to purchase business equipment.
If the business (your LLC) will loose the money - that is a market risk you should anticipate. You should not risk the money that you could not afford to loose.
However - regardless how you will fund the business - as contribution or as a loan - you will be only able to deduct operational business expenses if the business has been started.
Business losses are fully deductible against your regular income.