New Business

[Gary]

I have a client that spent $28000 in start up costs for a new business in 2007 (he has not yet filed his 2007 return). There was no income in 2007. In 2008, he formed a corporation with some partners to engage in this business. Since he had no income, I would not feel comfortable submitting a schedule C with $28000 losses and no income, and no schedule C for 2008. Can any of the 2007 expenses be attributed to the corporation return, even though there was no corporation in 2007?

Help!!

Gary

[BHoffman]

I have a client that spent $28000 in start up costs for a new business in 2007 (he has not yet filed his 2007 return). There was no income in 2007. In 2008, he formed a corporation with some partners to engage in this business. Since he had no income, I would not feel comfortable submitting a schedule C with $28000 losses and no income, and no schedule C for 2008. Can any of the 2007 expenses be attributed to the corporation return, even though there was no corporation in 2007?

Help!!

Gary

Hi Gary

You can't expense the start up costs until he starts up

Nothing to report in 2007.

The $28k would be booked into the Corp records. The offset would be either capital contribution or loan from shareholder (I prefer loan from shareholder). The rules for expensing/amortizing startup and organizational expenses would apply in 2008, assuming the business was up and running, open and available for customers.

Don't forget to consider start up AND organizational costs. You can elect to expense $5000 PER type of cost for a total write off of $10k in the first year.

TTB does a great job of explaining this on pp 8-17 and 8-18

[ChEAr$]

Nope

Hi Gary

You can't expense the start up costs until he starts up

Nothing to report in 2007.

The $28k would be booked into the Corp records. The offset would be either capital contribution or loan from shareholder (I prefer loan from shareholder). The rules for expensing/amortizing startup and organizational expenses would apply in 2008, assuming the business was up and running, open and available for customers.

Don't forget to consider start up AND organizational costs. You can elect to expense $5000 PER type of cost for a total write off of $10k in the first year.

TTB does a great job of explaining this on pp 8-17 and 8-18

Those individually incurred start up expenses will not be automatically "booked" into the corporate affairs, since they were not a corporate expenditure.

The corporation must at the initial organizational meeting of the initial stockholders take
any action which might reimburse that one shareholder for any expenses which might
have a bearing on corporate affairs, and clearly not all will so qualify.

Notice, I say initial stockholders' meeting and not the first board of director's meeting.