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Start-Up/R&D Expenses for Software Company

Technical topics regarding tax preparation.
#1
Posts:
14
Joined:
17-Jan-2017 2:14pm
Location:
Arlington VA United States
Hi Pros,

Good afternoon, hope all is well.

One of my client started a VR software company in 2017. The company is a single member LLC (schedule C).

He incurred around $8,000 expenses and no revenue in 2017. We did not report the schedule C on his 2017 1040, since no income has been generated.

In 2018, he incurred around $220,000 expenses including rent, equipment, payroll, contractors. However, they are still under the R&D phases and 0 revenue was generated in 2018 neither.

My question is how should we show the $220,000 expenses on 2018 return? We also want to apply for as much as R&D credit we can.

We are thinking about three ways to show the expenses:

1. Shown as schedule C expenses.
2. Shown as start up expenses, $5,000 for year 2018 and capitalize the rest.
3. Shown as a intangible asset on the balance sheet and when the product actually comes out, amortized the intangible assets.

We would like to hear some thoughts from you. Which way should we choose and will it affect potential R&D credits?

Thank you so much for your time and help.

Best regards,
 

#2
Posts:
14
Joined:
17-Jan-2017 2:14pm
Location:
Arlington VA United States
Hi Pros,

I really appreciates your time and help over the question.
 


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