Capital improvement and depreciation in restaurant LLC

Question

I opened a restaurant and I used a sizable capital to get it up and running including upgrades to the place like plumbing, electricity, hood, etc. I bought equipment for cooking and operating the place, paid architect and different subcontractors. I also payed different fees - legal, licenses, etc.

I have a couple questions about accounting - should all the money I spent be a part of capital spending? Or is it just a part of it?

If it is all capital spending before I open the place, can I depreciate it over time as I start doing business? Or should I start depreciating it immediately each month?

It took me about a year to open the restaurant, so at the beginning I was just spending money and had no income.

Our company is LLC if this matters.

Answer 1

First, you should probably have a proper consultation with a licensed tax adviser (EA/CPA licensed in your State). In fact you should have had it before you started, but that ship has sailed.

You're talking about start-up expenses. You can generally deduct up to $5000 in the year your business starts, and the expenses in excess will be amortized over 180 months (15 years). This is per the IRC Sec. 195. The amortization starts when your business is active (i.e.: you can buy the property, but not actually open the restaurant - you cannot start the depreciation).

I have a couple questions about accounting - should all the money I spent be a part of capital spending? Or is it just a part of it?

If it qualifies as start-up/organizational expenses - it should be capitalized. If it is spent on capital assets - then it should also be capitalized, but for different reasons and differently. For example, costs of filing paperwork for permits is a start-up expense. Buying a commercial oven is a capital asset purchase which should be depreciated separately, as buying the tables and silverware. If it is a salary expense to your employees - then it is a current expense and shouldn't be capitalized.

Our company is LLC if this matters.

It matters to how it affects your personal tax return.