Expert: Vanessa D. Powell, CPA - 2/7/2011

Question
Vanessa,
I was a member of an LLC for 3 years. We had a legal dispute that was recently resolved.  Since this was in the courts for an extended time the IRS allowed me to not file my taxes for 2004, 2005 and 2006 until this matter was resolved.  Now I am trying to file.
2004 was the start up for the LLC.  I received guaranteed payments of 18,439 during that year.  $9,371 was paid to me prior to the business opening.  ( yes, this was before October 23, 2004) It is my understanding that I can choose to capitalize these payments as "start up" organizational cost.  How do I do that? And how does that effect my income for that year?
The LLC claimed my guaranteed payments as a deduction.  I know I have to notify them and have them amend my K-1.
The following year, 2005, we expanded our business.  (It was a restaurant)  We added a banquet facility.  I managed the on going operation of the restaurant during that time.  However, I also designed, oversaw building, purchased equipment, researched and put together a menu for the banquet area.  I opened one of the 2 banquet rooms in December of 2005.  The other room wasn't completed and opened until 2006.  During 2005 I received $52,852 in guaranteed payments.  How much of this is "start up" costs?  Do I capitalize this too?  
Lastly, during both of these start up periods I incurred many deductible expense (example: 10,132 mileage in 2004, $3,500 in travel expenses in 2004)  How do I claim these expenses if I capitalize the start-up cost?
I know this is complicated and any help is appreciated.

Trish

Answer
Hi Trish-

Unfortunately, it sounds like you're confusing your personal income taxes with those of the LLC as an entity.  The LLC can capitalize start-up costs, but you, as an individual, cannot (unless you were a sole proprietor, but you were not.#

All of your guaranteed payments are ordinary income.  Self-employment income- so make sure to fill out a schedule SE with your schedule E.  For your expenses, use form 2106, and link it #at the top) to your schedule E.

Your situation is, indeed, complicated- hopefully it all works out for the best.

Let me know if I can give any further clarification.

All the best-
Vanessa