<General Rule>
IRS 195 (c) (1) (iii) quotes, “Start-up expenditure means any amount paid or incurred in connection with any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business.”
On Publ. 225, Ch. 4 quotes, “The ordinary and necessary costs of operating a farm for profit are deductible business expenses.” Also it quotes, “You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations.”
<Client Background> I have a client conducting new line of business (Farming to Ginning business later on) on a small portion of whole land in overseas. However no income will be generated in 2008. Client’s activities conducted in 2008 are as follows:
• cleaned, cultivated, fertilized and seeded, which will be ready to be cropped in December 2008
• Purchased machineries and equipments (tractors and trucks)
• Hired farmers, truck driver, administrative employees, trained mechanics, etc.
<Questions>
1) Which activities or stages are considered to be Starting of farming operation? If payments for some activities are considered as Start-up expenditures, I can amortize only after Business Operation is started. If some activities are considered as Business Operation, I can deduct as current expenses.
2) Or, can some expenditures be considered as Experimental cost (Code 174(a)) which I can elect to deduct as a current business expense?
Please refer to sections of documents which they relate. Thanks.
IRS 195 (c) (1) (iii) quotes, “Start-up expenditure means any amount paid or incurred in connection with any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business.”
On Publ. 225, Ch. 4 quotes, “The ordinary and necessary costs of operating a farm for profit are deductible business expenses.” Also it quotes, “You can deduct reasonable wages paid for regular farm labor, piecework, contract labor, and other forms of labor hired to perform your farming operations.”
<Client Background> I have a client conducting new line of business (Farming to Ginning business later on) on a small portion of whole land in overseas. However no income will be generated in 2008. Client’s activities conducted in 2008 are as follows:
• cleaned, cultivated, fertilized and seeded, which will be ready to be cropped in December 2008
• Purchased machineries and equipments (tractors and trucks)
• Hired farmers, truck driver, administrative employees, trained mechanics, etc.
<Questions>
1) Which activities or stages are considered to be Starting of farming operation? If payments for some activities are considered as Start-up expenditures, I can amortize only after Business Operation is started. If some activities are considered as Business Operation, I can deduct as current expenses.
2) Or, can some expenditures be considered as Experimental cost (Code 174(a)) which I can elect to deduct as a current business expense?
Please refer to sections of documents which they relate. Thanks.
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