Discussion:Start-up cost
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Discussion Forum Index --> Tax Questions --> Start-up cost
| 5 January 2006 | |
| Do start-up costs have to be amortized? Does that include all cost prior to opening a business? If not- what kind of expenses are elgible for start-up costs? Also can I decpreciate the rent I pay on lease property if I'm paying the taxes and maintenance cost? If so how should I depreciate it? | |
| 3 March 2006 | |
| You can expense the first $5,000.00 if the total start up cost is not more than $50,000.00. If over 50,000.00, reduce expense by amount over 50,000.00. Start up costs are all cost incurred before you start earning income. Rent, taxes, salaries, everything. Example: Total start up cost are 20,000.00, expense 5,000.00 and amortize the difference for 15 years. | |
DR BRISKET (talk|edits) said: | 3 March 2006 |
| Form 4562, page 2, part VI | |
CTurner555 (talk|edits) said: | 4 March 2006 |
| I believe start up costs (other than the $5,000 election) are amortized over 60 months; not 15 years. | |
| 8 March 2006 | |
| What is it? Do I amortize 60 months or 15 years? Do I pick either? Someone let me know! | |
DR BRISKET (talk|edits) said: | 8 March 2006 |
| As CTurner555 said, you amortize start up costs over 60 months. However, you should consider expensing the first $5,000. | |
| 8 March 2006 | |
| Nope. Code section 195 as amended by the 2004 American Jobs Creation Act allows the $5k deduction but any amounts not so deducted are amortized over 180 months. This is applicable for all start up costs paid or incurred after 10/22/04. Costs prior to that date are eligible for 5 year amortization.
Sec. 195. Start-up Expenditures 195(b) Election To Deduct 195(b)(1) Allowance Of Deduction (1) Allowance Of Deduction If a taxpayer elects the application of this subsection with respect to any start-up expenditures-- (A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of-- (i) the amount of start-up expenditures with respect to the active trade or business, or (ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and (B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins. | |
DR BRISKET (talk|edits) said: | 8 March 2006 |
| Thanks for clarification. I keep forgetting about the change back in October, 2004. 180 months it is. | |
| 9 March 2006 | |
| What if the taxpayer does not elect to expense the $5,000? The first year they are actively in business they do not have much income so they do not need the larger expense. Would they still amortize over 180 months or is it 60 months? | |
| 24 July 2008 | |
| What line do you make the 5,000 election to take the deduction?? | |
| 9 April 2009 | |
| I have a new client which formed two llc's in 2007 and didnt' write off the $6500 fee paid for the formation of two entities. they also attended seminars on purchasing real estate in 2007. they also put two previously purchased peices of real estate into the llc's in 2007
My question is. 1. can the start up election be made on an amended return? and 2. will the education expense, after the formation of the llc's be considered start up or education. they didn't buy any real estate but were actively shopping in 2007. thanks | |
| 9 April 2009 | |
| Bryon, In Reg. 1.195-1T(b) the election is deemed to be made when the Sec. 195 deduction is taken on the return for the year in which the business activity begins. It applies to costs incurred or paid after Oct. 22, 2004. I think filing an amended return just might be okay for start-up expenses that fit the date criterion. -- Larry Hess, CPA | Albuquerque, NM | |
Bevsucceeds (talk|edits) said: | April 9, 2009 |
| My question is similar to Byrons. I have a real estate corp formed as an LLC with the election to be a corporation. I had startup cost in 2007 (including educational seminars). I filed my 2553 election to be an S Corp beginning in 2008, so my tax CPA recommended filing my 2007 as an 1120 (regular C corp) with zeros. I had no income in 2007. My question is this:
I am a cash basis filer, so how can I legitimately add those startup expenses incurred in 2007 to my 2008 return? Or do I need to amend my 2007 return? I am filing my 2008 as an S (1120S) corp. Thanks. | |
| 9 April 2009 | |
| Bev, I won’t move your post to the consumer forum as you are, after all, a bookkeeper, so you've got a head start on the usual self-preparer, but if you don’t have much experience doing taxes for yourself or others, then you should be taking these questions to your own tax advisor. This forum cannot replace that advisor’s in-depth knowledge of your entire business and personal tax situation. (However, please feel free to make liberal use of the yellow search box to get more background info so that you know what questions to ask when you see your tax advisor.)
That said – both you and McBroomz need to look at some of the old discussions on TA about “real estate seminars” and about non-deductibility of expenses to prepare for a new career. See the various arguments, look into the various tax court cases mentioned, etc. | |
Bevsucceeds (talk|edits) said: | April 10, 2009 |
| Thanks Trillium - my tax accountant has abandoned me. I need to find a new one. I have talked to the IRS and unfortunately, you are correct, I have not found a legitimate way to deduct re seminars preparing for a new career. | |
| 10 April 2009 | |
| Bev, certainly you can't deduct the seminars if they qualified you for a new trade or business.
However, if you think they qualify as start-up expenses under Sec. 195 and they were incurred before the business began in 2007, you can deduct them on an amended 2007 return. Or if they were incurred after the business began in 2007 they would be currently deductible in full on an amended 2007 return. The only difference between start-up expenses & fully currently deductible expenses is when they were incurred: before of after the start-up date. In either case they must first qualify as deductions under some other Code section, the broadest & most common being Sec. 162 & Sec. 212 & the related Treasury Regs. You also must consider whether they would be non-deductible under Sec. 274. I'm assuming that you will read these references, so I'm not going to recite their terms here. Why you were advised to file as a C corp. after successfully making the S corp. election is a mystery to me. Did you also file Form 8832 that is required for an LLC to be taxed as a C corp. or S corp.? I wonder whether that has defeated the planning that led you to want to be taxed as an S corp. By the way, you refer to an LLC as a corporation. It's not. It is an entity created under a state law that is separate from the incorporation law. -- Larry Hess, CPA | Albuquerque, NM | |
