Business Expenses

[TAX]

I have a new client who wanted start business in 2008 and incurred following expenses.

Incorporation fees........$1000
Legal............................2000
Meals...........................45
Travel...........................200
Cab.............................100

This is an S corp. Business never started in 2008. No other activity in 2008.

Can I just deduct or record as start up expenses (up to $5000 allowed anyway)and there by creating Loss for 2008?

Thanks!

[MariaR08]

I don't know if the rules differentiate for an S corp vs sole prop... but I did alot of research on "start-up costs" for my sole prop. You can either amortize or deduct the start-up costs, but it's in the first year the business started. If the business started, or will start, in 2009 - you should claim the start-up costs on the 2009 tax return.

~maria

[TAX]

New info

This client told me that although Scorp continues, business will file final return in 2008.

Also, all expnese were paid from personal fund. I will just take ALL expenses as a loss on scorp and than this loss will go on K-1 and it will be deducted as a ordinary loss (equal to amount Loaned to business - basis). Thus I will not take capital loss.

Can some one please confirm.

Thanks!

[erchess]

TTB 1040 Edition p 8-17-18

You can take as you said the first $5K in the first year the business operates. As I understand your post the business never operated. However you can take the remainder the year the business terminates. You should read the pages I referenced.

If the company was not dissolved by filing papers with the Secretary of State in the State of Incorporation effective by the end of 2008 then tax returns will need to be done for 2009 and 2009 would be (in my opinion) the year in which the business dissolved and therefore in which you can claim the expenses we are discussing. Don't get me wrong, returns are still due for 2008 but they will show no activity.

And yes, when taken the expenses will end up on K-1 as an ordinary loss.

[TAX]

You can take as you said the first $5K in the first year the business operates. As I understand your post the business never operated. However you can take the remainder the year the business terminates. You should read the pages I referenced.

If the company was not dissolved by filing papers with the Secretary of State in the State of Incorporation effective by the end of 2008 then tax returns will need to be done for 2009 and 2009 would be (in my opinion) the year in which the business dissolved and therefore in which you can claim the expenses we are discussing. Don't get me wrong, returns are still due for 2008 but they will show no activity.

And yes, when taken the expenses will end up on K-1 as an ordinary loss.

Thank you!

Company is still active in the sense that it will look for some other business in 2009. This way client does not have to setup another corporation with sec of state.

Intended Busienss in 2008 never happened. Therefor it is a final return for the business and not for the company. Am I right? May be I should not mark return as final.

From you response, I can put entire startup expenses on Balancesheet in 2008 and wait for 2009 or until company gest dissolved. But I thought that INVESTIGATORY expenses are deductible for corporation that never started business as per TTB - -8-18.

[Burke]

The corporation continues until such time as it is lawfully dissolved. So NO final return until that happens.

[erchess]

Ok

I think you are correct about investigatory expenses but I failed to notice any in your original post. My mistake.

If the company "opens for business" even in a new line of endeavor it may in that month take the first 5K of start-up costs and begin amortization of the rest. What constitutes "opening for business" is a facts and circumstances situation but basically what it comes down to is that you have formed and begun to implement a reasonable strategy for finding people who will buy what you are selling. A bricks and mortar store can consider itself "open for business" on the first day customers are welcome to come in and buy things. It is not necessary that any actually do so. I had a client who was a home improvement contractor. First he made arrangements with local firms to be available on short notice to install his improvements. He next trained some sales people and got them ready to make visits to homes by appointment and placed various sorts of advertising to try to get people to call into corporate HQ. I deemed that he had opened for business when, after those steps, he put in place a call center to receive the calls coming in and place cold calls to people on lists he bought of people meeting certain criteria including not being on the Federal or State Do Not Call Lists. A Tax Professional may consider himself open for business when he can be readily found by people wanting tax help. I can see where that might involve as little as some advertising aimed at getting people to call, a plan for answering the calls, and arrangements for a place to do the work and all the necessary tools. .