I paid for web-site hosting in December 2006 so I could develop a website to sell a product. I worked on the website and went live in early 2007. I did not file a 2006 tax return as I didn't have any real business activity, just start-up costs. I did apply for an EIN in Dec '06 in order to open a bank account. I put the start date of the business as 12/06. Now I am doing my 2007 tax return for the business which was profitable in 2007. According to Publication 535, start-up costs up to $5,000 are deductible. However, how do I do that? Do I just run the whole expense amount through 2007 expenses? What about the beginning balance sheet for 2007? My partner and I did put in capital and have cash at the end of 2006, but as this is my first return, do I just put down zero at the beginning of the year and show the capital contribution happening during 2007 or do I put a beginning balance down even though no return was required to be filed in the prior year?

Well, it seems that you have a problem.

First, I assume that you realize that you have a partnership; and, thus you have to file a form 1065. Now where you got this idea that no return was required for 2006 I have no clue! But it isn't a correct assumption.

Here is a copy of the basic rule directly from the IRS.....

Must a partnership or corporation file a tax form even though it had no income for the year?

A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes....