Business Setup Cost and Such

Question

I have formed an LLC (I know that the IRS does not see that as the business) which is going to be taxed as a Partnership. Currently the Partnership is just me and my wife, though we are in a Community Property state and such, this coming year we will be adding our 4 adult children on as owners, so this is setup as a multi-member LLC.

My wife and I used funds we had to start the business, this would be $1800 that was used to start it up. So I assume that I need to create an Equity Account for both myself and my wife and then equity account later in the future when we onboard the kids.

When I setup the Quickbooks, I used the default service chart of account (if I remember right) as our business will only be providing a service. Currently in the Quickbooks file, I have the following, but I think I need to adjust them

My Name - Equity Account

Wife's Name - Equity Account

30000 - Opening Balance Equity

30300 - Member 1 Draws

30400 - Member 1 Equity

30500 - Member 2 Draws

30600 - Member 2 Equity

32000 - Retained Earnings

I also need to record the start-up that we used those funds to pay, LLC formation in Texas, required licensing fees to the State of Texas and insurance. The business will not start operation until after Jan 1, 2019, as we are waiting on the license to be issued by the State of Texas which will be after the first of the year, so for our 2018 tax's the only things that will be reported are startup expenses, totaling just under the $1800 we put in. A few of these items that we had to do for start-up will also be required on a yearly basis going forward, such as the state license and insurance.

Trying to get things set right, so that they can easily import into TurboTax Business for generation of the partnership return and forms.

Rustler · Accepted Answer

@Rustler

Thank you for that. I just wasn't sure if I need to make sure our names where in those slots or not.

I adjusted the equity and draw account to the following:

30000 - Opening Balance Equity

30300 - Husband Draw

30400 - Huaband Equity

30500 - Wife Draw

30600 - Wife Equity

Does is correct? Then when the kids get added, we just continue the numbers and add each with their names and Equity/Draw per kid.

Now you might not be able to answer this one. We setup the business, got our insurance, got our sales tax numbers, EIN and such now in 2018. We are open for business per-say, but can not take on any clients until after Jan 1, 2019, as the service we are providing is a regulated service in the State of Texas and we are waiting on our license to show that we can provide that regulated service. Do I have to wait until next tax year (2019 taxes) before I can claim those items as part of our organizational or startup cost, or can they be claimed in this year? If you can't answer this one, that is fine. I have it also at the TurboTax website and gotten several various answers.

@Rustler, by the way, I sent you an email, yesterday I think about your items on your website and that the pricing of at least one of them does not match what is said on the site and what is actually charged.

@cdhodgdon

You want the chart of accounts to show the total amount spent, but you also might want to see the sub areas you spent money on, as an example
utility expense - you can pay all utilities (water, gas, elect, internet, etc) and book all payments to the that one account. But that also means you can not see when one of them takes a drastic jump, like a water leak would cause.

In QB a parent account is a summing account by default (and if there are sub accounts you do not post to the parent account), so it shows the total of all sub accounts. So for utility expense, it might look like
Utility expense
>>elect
>>gas
>>internet
>>water

that allows you to look at individual expenses, or the sum total at one glance

As I said earlier, IMO that same concept needs to be used with equity

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

Yes the list of equity accounts you show will work, but come the new year you usually clear each partners equity drawing and investment accounts to equity as well as retained earnings. Keeping them together as I show make it a lot easier to find, and the parent / sub account structure makes reading the balance sheet easier too.

but it is up to you

I got your email, thanks for the heads up.

I'm in Kerrville, where you at?

Rustler · Answer

For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), I recommend you have the following for owner/partner equity accounts (one set for each partner if a partnership)
[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

create your business bank accounts and a cash type bank account in the chart of accounts

for your money you started the business with, make a deposit in the cash bank account and use the partner equity investment account as the source account for the deposit
then use write check on the cash account, do not print this is just a data entry form, and list the expenses and amounts, when you are done the cash bank account balance should be zero.
do the same thing for the other partner

Ignore transferring to turbo tax, it does not work well at all. Intuit turbo tax is a year round effort by tax accountants to stay on top of regulation and form changes - NOT so for QB the tax line assignments for accounts has not changed since 2006.

I suggest you structure the chart of account according to the form 1065 you will file for the business, use sub accounts to track detail if needed. Then assuming the _P&L is right, you can just type in the numbers in turbo tax, switch to forms I find that lot easier than their interview process

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