| Proper accounting for self-financed software startup
To the Moderator: Our tax entity is a General Partnership. Since I don't see this specific category here, and since LLP seems to be closest to GP for tax purposes, I am posting my question here. Please let me know if I should move or re-post it elsewhere.
To the Forum:
This tax year, we have shifted focus of our GP to a new software venture development, significantly dropping our consulting work. Consequently, our consulting income has dropped, as expected of course. We self-financed our startup work from our savings.
The funds were used for business related expenses (software, services, office, health insurance), as well for personal living expenses, as if we worked for a company paying us compensation for our software development work. All inflows and outflows are well documented in bank records and expense receipts.
We deposited savings funds into personal checking accounts, from which part of the money was used for regular personal living expenses, and part for business expenses, posted as bills into QB. All this resulted in a business loss, which is passed to the partners via K-1.
Questions.
1. Given that there is practically no income on the individual side, what is the optimal way to avoid losing all these deductions, plus deductions on the personal side, such as health insurance, possibly preserving them somehow for future years for a deduction against potential future income?
2. Should the inflow of the personal savings financing of the venture be recorded somehow as if we worked for a third party, a company or another financing entity, which paid us compensation, some of which was used for business expenses and some for personal?
When I thought about question 2 previously, it did not make sense to me, even if there was a legally correct way of doing it. I thought it would generate self-employment taxes which would defeat the purpose. However, I just don't have the knowledge to fully understand all the implications and possibilities. Hence my questions to tax gurus.
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