Discussion Archives:Franchise Assets

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Discussion Forum Index --> Advanced Tax Questions --> Franchise Assets


Discussion Forum Index --> Tax Questions --> Franchise Assets

Ijazassociates (talk|edits) said:

4 February 2009
One of my clients just bought a franchise. He paid a $20,000 franchise fee of which I believe he can deduct $5,000 this year as a start up cost and amortize the rest over 15 years. Am I correct?

Secondly and mainly, he bought the franchise [inventory, computers, displays, and just the right to take over basically] for $160,000. He paid $20,000 in cash and will be making monthly payments on the remaining $140,000. How will the $160,000 show up on his balance sheet. As fixed assets and equipment, or goodwill on the Assets side and a long term liability on the liabilities side.I believe I should be expensing the interest payments out of the monthly payment, or should the entire amount be going towards the long term liability. Also will the fixed asset/fixtures be amortized over 15 or depreciated over a certain time?

I appreciate everyone's support. Thank you in advance!

JR1 (talk|edits) said:

February 4, 2009
The contract should control, both buyer and seller must agree and attach the Asset Aquisition form, but anything you can separate in terms of hard assets are depreciated, and whatever is left is 15 years. I don't see start up costs coming out of a franchise fee.

Ijazassociates (talk|edits) said:

4 February 2009
Thank you JR1, but wouldn't the franchise fee qualify as a start up expense? A taxpayer is allowed to expense the first $5,000 and amortize the rest over 15 years.

JR1 (talk|edits) said:

February 4, 2009
I don't know...research startup expense to see what qualifies, but in my mind, it doesn't.

Moon101 (talk|edits) said:

4 February 2009
The assets would be on the balance sheet at cost and accumulated depreciation. Same for Inventory. Any remaining balance will be considered Goodwill and amortized over 15 years.

Ekcpa (talk|edits) said:

5 February 2009
as another point.

if he signed up for the franchise and signed a note. for the rest then he would have a deduction for 1/15th of the 160.

debit franchise asset 160 credit cash 20, credit note 140k come up with principal/interest based on payment schedule.

startup might depend on if he bought the franchise and didn't open for business. In which case non is deductible this year but starts next year.

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