Skipping a loss-year return: what is lost?
US citizen abroad, no taxable income, new single-member LLC with only startup costs in 2026 and no revenue. We plan to file no 2026 return. What do we give up: the section 195 startup deduction, a net operating loss, the statute of limitations? Can a 2026 return be filed late with no penalty when no tax is due if we want the loss later? If the first sale is in 2027, do the 2026 costs become startup costs deductible in 2027, including against self-employment tax?
Quick Answer:
If you do not file a 2026 return, you generally do not "lose" the Section 195 deduction. Startup costs (expenses incurred before the business begins active operations) are capitalized and then deducted/amortized starting in the year the business actually begins (e.g., 2027).
However, you do give up the start of the **statute of limitations**. Without a return, the IRS can audit that tax year indefinitely.
Regarding **Net Operating Losses (NOLs)**: Startup costs do not create an NOL in 2026 because the business hasn't technically started. Once the business begins in 2027, these costs become deductible. They will offset both income tax and **self-employment tax**.
You can file a 2026 return late. If there is zero tax liability, there is typically no "failure to file" penalty, as that penalty is a percentage of the tax due.
**Key Distinction:** If the 2026 expenses are "operating expenses" (business already started) rather than "startup costs," you must file a 2026 return to claim the loss. If they are true Section 195 startup costs, they "wait" until 2027 to be claimed. I am unsure of your specific facts regarding when the business "begins."
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
