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Depreciating a Franchise Start up

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    Depreciating a Franchise Start up

    I have an LLC that began a year ago owned by a couple. They purchased a Franchise Service Business with an exclusive territory (Only one Franchisee per area/region). The Franchise sold to and was absorbed by another franchise, unbeknownst to my client until it was absorbed. Now they have a smaller territory under the new name. No additional purchase price, just a change of name and territory adjustment.

    My client decided to partner with another couple under this new franchise name and form another LLC, filing as a 1065. First partner had initial investment of $75K, and is transferring the buy in amount into start up fees for new Franchise. The new couple is to pay 40% eventually, as they are the labor part, and thus signed a Promissory note for 40%.

    The initial client wants to now amortize start up/purchase amount in new company. My question is twofold:

    1. Being that he already amortized a portion of start up under initial company, would his start up amount be the balance of what was not previously amortized in first company?

    2 If he depreciated the amount now, when the second couple pays Promissory note, will they be allowed any amortization of their investment, or would it be a capital contribution, excluded from income?
    Last edited by Openfire; 04-12-2015, 11:00 PM.

    #2
    how are you going to justify the capital basis as startup? Did they purchase equipment or any other startup expensewith the funds?
    Believe nothing you have not personally researched and verified.

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