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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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I am doing 2007 taxes for our LLC (long story involving an

Resolved Question:

I am doing 2007 taxes for our LLC (long story involving an irresponsible accountant). I have first year start up expenses that I could claim in section 179 of form 4562. My question is can I go ahead and claim these startup expenses all in the first year if we already show a NOL before applying this deduction? We were open in 2008 and closed bus. in April 2009 if that is a factor (carryovers, etc.) This secction is confusing to me can you give me a layman's explanation?
Submitted: 5 years ago.
Category: Tax
Expert:  MequonCPA replied 5 years ago.

DearCustomer-

 

Dear RAGANGANTT -

 

Section 179 is an election to expense assets that would normally be depreciated.

 

An LLC cannot pass through section 179 deductions if it has a loss. It can make the election but the deduction is carried forward at the partnership level until the LLC has income. At that point it becomes a deduction and is passed through to the members. I am providing links to 2007 Form 4562 and instructions. The entry on line 11 of Form 4562 is the business income of the LLC (excluding section 179) but not less than zero. The deduction is the lesser of the Section 179 allowance elected or the income of the entity shown on line 11.

 

http://www.irs.gov/pub/irs-prior/f4562--2007.pdf

 

 

http://www.irs.gov/pub/irs-prior/i4562--2007.pdf

 

There are two tiers of limitations. The first is the entity limitation. The entity must have income before the section 179 deduction before being able to use it currently.

 

Then each member has their own annual limitation. This limitation allows you to include wages as business income.

 

See pages 20 - 23 of IRS Publication 946 for details (link below).

 

http://www.irs.gov/pub/irs-pdf/p946.pdf

Customer: replied 5 years ago.
So given that we never had a profit, which is why we had to close, I am better off just using normal depreciation options? I need to offset as much personal income as possible as I had to cash out a lot of stock that went to LLC as contributions, both in 07 and 08.
Expert:  MequonCPA replied 5 years ago.
Did you have a loss without depreciation and/or Section 179
Customer: replied 5 years ago.
Yes, straight up red ink. Revenues-COGS- expenses=big negative number. Depreciation or 179 would of course add to that big number.
Expert:  MequonCPA replied 5 years ago.
Customer-

 

Sorry things didn't work out. In that case, don't take Section 179, just take the appropriate depreciation.

MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and 4 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Thank you, that's what I suspected but I think I over analyzed it, You were very helpful.
Expert:  MequonCPA replied 5 years ago.
Glad I could help.

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