legal fees

[natiro]

Client is an investment advisor who worked for a firm and received W2 wages through April 2005. On May 1, he left the firm and went off on his own - sole member LLC. He incurred 920 of legal fees which are clearly organization costs. He also paid about 9000 in attorney fees to negotiate the contract with his old employer for the fees he would pay them for clients he was taking.

He has been filing Sch C for years for the insurance sales portion of his business. The LLC was actually formed Jan 1, 2005. The contract negotiations occured prior to the start of his investment advisor part of business, but his insurance related business was still going and was now being operating under the same LLC name that the investment advisor part of the business would eventually be reported under. In other words, a portion of his Sch C business was already operating when the contract negotiations happened.

Questions: would you expense the 9000 in fees or treat them as organization or start up expense?

[Gretel]

I would use as expenses. Was part of existing business, which just expanded.

[Bees Knees]

Only partnerships and corporations have organizational expenses. Schedule C businesses only have to deal with the start up cost issue.

I agree with Gabriele. Since the Schedule C business was already in existence on the inurance sales portion, adding investment advisor type services is merely expanding the scope of an existing business, not the start of a new trade or business. No need to deal with start-up costs.