Discussion:Start-up expenses for service companies - unusual situation
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| Revision as of 16:49, 9 November 2007 Cpaprincess (Talk | contribs) (Yes, definitely) ← Previous diff |
Current revision Bengoshi (Talk | contribs) (Not sure when th) |
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| Any more input would certainly be appreciated. Thanks.}} | Any more input would certainly be appreciated. Thanks.}} | ||
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| + | {{ForumReplyPost|UserID=Bengoshi|Date=9 November 2007|Text=Not sure when the "active trade or business" began... But at least a portion of those expenses you list seem to me like "start up expenses" within IRC 195. For example, some of the salaries/payroll taxes incurred to train employees/staff, pre-opening advertising costs, travel/meals to solicit business from potential clients, etc.}} | ||
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Discussion Forum Index --> Tax Questions --> Start-up expenses for service companies - unusual situation
Cpaprincess (talk|edits) said: | 9 November 2007 |
| I have 2 questions related to a new client. They are a personnel placement firm that was incorporated in 6/06. Another firm prepared their initial 2006 1120S incorrectly and we are amending it to correct numerous income and equity errors. The client did not receive their first revenue check until 10/06; however, they were calling on potential customers starting in July, even though they did not have their office entirely set up yet. They were starting to take applications in July and August as well, and had their first placement in October. The prior accountants took all expenses through September as start-up expenses, deducting $5000 and amortizing $9000.
Because they are a service company, it's a little harder to know exactly when the business officially started. I am considering changing the election, and considering only expenses through July as start-up expenses, and all expenses after that as ordinary expenses, as they were trying to get business and applicants even though the office was not entirely ready. My questions are: 1. Can I change the election to expense start-up expenses, and if I can, can I do so without it creating a red flag? (I think we'll already be creating a red flag with all the equity accounts that are going to be changed on the amended return - but we need to get it correct and we have support for that). 2. Would you concur with my opinion that the business really started in the July/August timeframe, as opposed to October when the first revenue check came in? I'll appreciate any and all feedback you could provide to me. Thanks! | |
| 9 November 2007 | |
| Can you list the nature of the expenses? Advertising? Market Research? Etc? | |
Cpaprincess (talk|edits) said: | 9 November 2007 |
| Advertising, marketing, phone, supplies, rent, auto expense, travel and meals, accounting fees, wages and payroll taxes, office supplies, printing. Your basic operating expenses, except that some were incurred prior to occupying the office, some were incurred after occupying, but before the first placement occurred. | |
| November 9, 2007 | |
| I'd say they're in business when they picked up the phone, that's what they were doing. But I'm not so sure I'd amend for it. All the expense will come back quickly anyway, oh, except then I bet your startup is under the 5k for immediate write off. OK< that might be worth it. | |
Cpaprincess (talk|edits) said: | 9 November 2007 |
| Yes, definitely it is under the $5K. I just want to make sure we are not creating more of a red flag with the IRS by changing the election, along with everything else we're changing. But I am assuming that as long as we can support the decision of when the business started we will be okay. Service firms are more difficult to determine, because there's no "storefront" really, even though they did eventually open an office.
Any more input would certainly be appreciated. Thanks. | |
| 9 November 2007 | |
| Not sure when the "active trade or business" began... But at least a portion of those expenses you list seem to me like "start up expenses" within IRC 195. For example, some of the salaries/payroll taxes incurred to train employees/staff, pre-opening advertising costs, travel/meals to solicit business from potential clients, etc. | |
