When can I begin to Write off business expenses?

Question

Hello Community! I am just starting out in the real estate investing world and am currently looking for my first investment property. I'm planning to form a LLC as soon as possible. My question is, as soon as I form my LLC, can I begin to write off taxes? Or does there need to be a property under the LLC's control?

What are the minimum requirement to begin writing off taxes used to grow my business?

Thank You!

What are the minimum requirement to begin writing off taxes used to grow my business?

Thank You!

Brandon Hall · Answer

@Mark Poulton I don't know how to can stand by giving faulty advice. There are people on this forum that are brand new and don't know the difference between advice rendered via a CPA vs a non-CPA. The advice you have provided can get people in serious trouble. Why put your reputation at stake?

And if you haven't been advised on when you can deduct business expenses, you should switch CPAs. You can only deduct expenses once you place a business into service. What you are advising is quite literally tax evasion (highly illegal).

If you set up an LLC and incur start up costs in 2016 but your business isn't actually ready to go (i.e. You have a contract or a rental) then your 2016 expenses are not deductible in 2016. They are deductible in 2017, the year in which your business actually started operating.

Can you imagine the negative impact of setting up shell companies with no intention of actually ever doing business but still being able to write off business expenses? That's what you're advising for and there have been many a court case to prove you wrong. I suggest you do a bit more research prior to coming on so hard.

Cheers.

Linda Weygant · Answer

I'm going to chime in too, not to pile onto @Mark Poulton, but to offer some encouragement.

I'm a CPA with almost 20 years of experience in real estate accounting and taxation.  One of my very first posts on here after I first joined, I gave some incorrect advice based on the position of a CPA I had apprenticed under.  (He was wrong and taught me something wrong and I accepted it as gospel).

I ate some crow, apologized and vowed to be a LOT more careful in my answers.

I am sure you have a lot of really great knowledge to share and I encourage you to do so.  It would appear, however, that you've perhaps received some incorrect knowledge in your past that you are maybe using in your own business and sharing with others.  Consider the source of where it came from and take the writings of some of the premier real estate CPAs such as @Brandon Hall and @Steven Hamilton II to heart.

Your eagerness to answer people's questions is admirable, but I think if you watch some of the conversations as they unfold, you'll learn a lot more of the technical aspects of accounting and taxation by reading and absorbing the answers from others.Most of the CPAs here have key word alerts and they will chime in on 99% of the tax related questions.  I would encourage you to add some alerts such as "CPA" "Accountant" "Accounting" etc to your alert and read the advice that is given by the CPAs.  You may find that a lot of your gut instinct or what you have been told may have been incorrect and you'll learn an awful lot on how to run your business going forward.

Hang in there, stick around and offer the advice you are sure of.

Lance Lvovsky · Answer

@Mark Poulton I can't help but notice that you have given incorrect advice numerous times on the Tax/Legal forum. As @Brandon Hall now mentioned to you a couple times, you are providing incorrect advice. While the community certainly appreciates your willingness to help, please refrain from providing "advice" regarding Tax issues, as you are providing inaccurate information.

This post is not meant to attack you in anyway. Again, I am sure you have good intentions, but Taxes are very complicated, and unless you know the answer, please don't be giving inaccurate advice to our fellow members.

Thank you.

Brandon Hall · Answer

@Mark Poulton incorrect advice again. You cannot write off expenses immediately. The business needs to be placed "in service" which has a different set of criteria per industry and business.

A rental business is in service when the rental is advertised for rent. A brokerage or flipping business is in service once a contract has been entered into.

Account Closed · Answer

Liability huh?  That is a new one I must admit.  I can say this.  Don't follow my advice.  I am not an umber pro and clearly I am not Donald Trump.  If you want advice, ask a real estate billionaire.  He will know what you really need to do but I doubt he will give that level information away for free.  Unlike me..  However, since I don't know any billionaires, and I doubt you know any and really doubt the guy begging for advice on how to fund his down payment on a property don't know any, they are stuck with the less successful people like me.  But once again, don't take my advice.  You typically get what you pay for in this industry.  Have a fantastic day.

Steven Hamilton II · Answer

Honestly, you're outright hostility is the issue. We are here to assist one another. What I would suggest is if you're going to give advice please make sure you do so expressing the situation and the qualifications that support the statement.

Giving incorrect financial advice can have serious consequences. I will say that is not the kind of liability you want. I simply say this because I don't want to see bad things happen to good people.

The other concern is the unwillingness to accept a suggestion from others. I'm sure some of the admins such as @Brandon Turner will find after awhile that you are simply putting some in a bad position on here. Please remember its a community to help each other and not to get aggressive on a message board.

Account Closed · Answer

@Brandon Hall  Once again you mistake me for someone who cares what you think.  I realize you are all about what other people think an I am not. Hence the reason I am successful.    If you are under the impression that non-legitmate deductions are acceptable, then I have no further use for you.  You clearly assume too much and I don't really care either way.  Go ahead and keep on doing that.  It doesn't matter to me. This is not a popularity contest.  I give the best advice that I have at the time and if that is not good enough for  you, then I that is your issue.  Not mine.  Once again, you assume way too much.  Can you imagine that a CPA assumes something, like you did in this thread, and not give your best advice?  Personably, I don't have a skin in this game.  Legit... which means legitimate... expenses are deductible your first year.   Go give someone who cares what you opinion is a hard time.  I will continue to do what I think is best is despite your opinion.

Christopher Phillips · Answer

always helps to have a reference...

http://www.nolo.com/legal-encyclopedia/deducting-expenses-you-incur-before-your-real-estate-business-begins.html

When can I begin to Write off business expenses?

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