Discussion:Start up Costs
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Discussion Forum Index --> Tax Questions --> Start up Costs
| 11 March 2006 | |
| Client began buildout on a restuarant in 2004 - began paying rent incurring various expenses as well as all the leasehold improvements - everything was capitalized in 2004 - the restaurant finally opened in September 05 - again paying rent and incurring other costs throughout 2005. Where do the start up costs end and the business begin? With the new 15 year amortization I would like to be as agressive as possible. | |
| 11 March 2006 | |
| Sounds like September 2005 to me. IRC 195(c)(2) states that the determination will be made in accordance with regs prescribed by Secretary. I think we're still waiting on those regs, however. Unfortunately, I am guessing your start up costs exceeded $55k and hence your client will recieve no first year write off of $5,000. If I am wrong, then he possibly will be able to take advantage of it. | |
| 11 March 2006 | |
| Way over $55K - ok - do I also have a short year for depreciation / or do I just place it all in service in Sept? | |
| 11 March 2006 | |
| Assuming you incorporated in 2004 you will get a half year of depreciation on everything placed in service in September (presumably the mid-qtr convention will not come into play, since the lion's share of everything will have been placed in service before the fourth qtr). It seems that you may have some assets that were placed in service prior to opening, however, and some of the depreciation on those items may (technically) need to be capitalized as start-up costs, but I am not sure on that. | |
| 11 March 2006 | |
| I have similar situation: Client started nonmedical assistance business in May 2005, and incurred only costs and no income of over $7,000 for incorporation, attorney's fees, taxes, licenses, rent, etc. while still trying to get clients but did not make any income until Feb. 2006. Should I combine all those costs and call it startup costs and amortize over 15 years or should I list them out as rent, licenses, taxes, etc.? It's a little late, but we're also trying to file for S Corp Election. Any advice out there? | |
| 11 March 2006 | |
| Late S election can probably be obtained. IRS is fairly lax on those rules if you plead that you intended to do it but somebody screwed up (Atty forgot to make election, client didn't know about need to make election, etc.) As to your startup costs, you can elect to expense $5000 in 2006, then amortize the remainder over 15 years. | |
| 12 March 2006 | |
| Or did you mean elect $5000 in "2005" (all costs combined)and amortize $2000 over 15 years.
Where can I find reference for this $5000 expense election? | |
| 12 March 2006 | |
| Yes, I did mean 2005. But the $5000 will be reduced by each dollar of startup costs incurred in excess of $50,000. Code Section 195(b). | |
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