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Disregarded Entities & Startup Costs
Who are you?? Where are you?? Do you have an Accountant??
I am the owner of the corporation in the Atlanta area. The corporation manages the LLCs which will be operating franchised child care development centers in two Atlanta area cities. In addition to being the owner of the corporation I will be the business manager for at least one of the LLCs. Given my experience as a business manager for a 2500-member church, I'm hoping that I can handle most of the accounting chores once I get things set up. I have consulted with several accountants in the area and an attorney, but I have yet to find anyone with enough knowledge about my unique situation who can answer my questions. That is why I am searching for help here.
There is a bill in the house to increase the startup cost to 20K for 2009-2011.
Did I understand your post correctly; the C corp is the only member/owner of the single member-LLC? Generally disregarded entity is a business entity that chooses to be disregarded from the business owner for federal tax purposes. So it only matters for filing purposes of self-employed or sole-proprietors. You can't really have C corp in the SMLLC structure. So please clarify this for us.
The single member of an LLC can be any legal entity, including a corporation. Originally the C corp was set up to operate a child development center. It was structured as a C corp so that funds from IRAs could be used for the funding. The C corp was set up with a qualified 401(k) plan. Funds were rolled over from IRAs into the 401(k) plan. The 401(k) plan then purchased shares in the C corp. Later we decided that we needed to start a business with rental property. That is when we established the two LLCs to protect teach of the businesses. The C corp is the single member of each LLC. My wife and I along with the 401(k) plan are the shareholders in the C corp.
Part of the confusion I have is that everything I have read talks about taking the $5000 expense deduction in the tax year in which the business becomes active. Since the C corp is essentially a holding company that manages the LLCs, it started business when it was formed. The LLCs were formed in 2008, but neither of them has actually started doing business yet. It is clear that the C corp can elect to take a $5000 expense deuction for start-up costs and one for organizational costs. The question I have concerns being able to do the same for each of the LLCs in 2009 when they start their businesses in light of the fact that they are disregarded entities.
Does that explain it enough or do you need more?
Correct me if I got it wrong: You currently have C corp. The LLC is formed. LLC elects to be treated as C corp (for tax filing purposes). C corp adopts BORSA plan (Business Owner's Savings Account) to capitalize costs for new business (the 2 LLC or just to use it for C corp growth). C corp adopts a 401K under the BORSA to self-direct the funding. Thus, a 401(k) plan (for the benefit of its participant) becomes a shareholder of the C Corp. There is an IRA that you want to rollover to the 401K plan so you can use the qualifed money from the IRA for capitalization of the 2 LLC or C corp.
Now back to your question. You want to know if the C corp that's managing the 2 LLC can deduct the startup cost for both LLC on the C corp books and not on the LLC books in 2008? And then deduct another 5K for each of the LLC (on the LLC books) in 2009 when those LLC will start operating?
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I have a C-corp that is the single member of two LLCs. Since the LLCs are treated as disregarded entities for tax purposes can I claim an aggregate deduction of $15,000 for startup costs and $15,000 for organization costs for the combined entities or am I limited to $5,000 in each category for the parent company only? If I can use the higher amount, I believe the allowances for the LLCs would have to be taken in 2009 since they were not "active" in 2008.