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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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In Sept 2012, I quit my full time job (w2) and start software

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In Sept 2012, I quit my full time job (w2) and start software consulting 1099.
I spent a $8,000 overhead spending (under schedule C) to start my consulting business, which spending occurred Oct 2012 and Nov 2012. It's not until Jan and Feb 2013 that I finally start receiving steady payments of around $30,000 for my consulting work (as 1099 Corp-to-corp S-corp). S-corp is "pass-thru" one man corp.
My question is how can I deduct that five thousand against my $30 thousand, so I can pay tax only $22,000 ? Especially because $8,000 occurred in 2012 and $30,000 paid in Jan/Feb 2013.
It may be a basic question (election year ?) but this is first time I am consulting 1099 S-corp and not familiar.

LEV :

Hi and welcome to Just Answer!


Based on your information - all your expenses are classified as start-up expenses.
If you had the start-up costs for a new business, you can deduct $5,000 of the total start-up costs and $5000 or organizational costs in the year the business started and the remaining costs over a 15 year period.
You would be able to start deducting start-up expenses on 2013 tax return if the business started during 2013. Generally - the business is considered as started if you have a product or services for sale.
For 2012 - because you had a corporation - the tax return is required even there were no business activities.

Customer:

What about "Fiscal year" election option ? I am a Corp-S. Are you familiar with Corp-S fiscal year election ? If I deduct the $10,000 you said, against what, since I did not receive pay (60 days delay for 1099 bills) for Nov/Dec 2012 consulting until Jan/Feb 2013. Can I deduct $10,000 against my full salary W2 job from Jan-Sept 2012 when I worked as employee for CSC ?

LEV :

All S corporations, regardless of when they became an S corporation, must use a permitted tax year. A permitted tax year is any of the following.


•The calendar year.


•A tax year elected under section 444 of the Internal Revenue Code.


•A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444.


•Any other tax year for which the corporation establishes a business purpose.


If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128.

Customer:

I can alway google and cut/paste text that I can't conclude anything. I need expert who know enough to make actionable suggestion and not cut/paste all possible gibberish. I still can't conclude what/how I can go about. I guess I know slightly more than you, I know about fiscal election. I am disappointed.

LEV :

If you are looking for expert's opinion - your request to use a different tax year for your S-corporation will be rejected by the IRS because there is no business purpose for that.
You need to use the calendar year.

Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

If you are looking for expert's opinion - your request to use a different tax year for your S-corporation will be rejected by the IRS because there is no business purpose for that.
You need to use the calendar year.
Lev and 2 other Tax Specialists are ready to help you