Business Startup Falls in 2020

[Sparky]

Client buys a business with every intention of starting in 2019 . . delay after delay . . it will open it's doors for business in 2020. I understand the start-up expenses and capital expenditures that have to flow to 2020. However, what about an asphalt driveway that was needed; used by contractors. Any chance on taking some of that in 2019? Just looking to offset all the money they pulled out of IRA's to get this going. At least the property tax and mortgage interest on Sch. C?

[ATSMAN]

Off the top of my head the cost of asphalt driveway may be depreciated. I am not sure you can take any of that in 2019 because it was prior to starting the business.

[WICPA]

Bad news, but if they were not active, no to the driveway in 2019 and the interest and taxes would have to be capitalized as well.

[ATSMAN]

Sparky be very careful how you prepare the Sch C for 2019. You will no doubt get a lot of pressure from the client to include some expenses for 2019 to reduce taxable income. At the end if this return is audited you will have to answer the justification. In my practice when in doubt I tell them what the law is and if they disagree, I politely disengage because it is not worth my aggravation.

[Sparky]

Thank you - this is what I thought but you know how we can be brain washed when we want something to go well for hard working clients. They have no income. Just BIG money spent on renovating a building etc. So, now I am thinking, do I even file a sch C? Permits, fees, etc., would all fall into start-up as well.

[ATSMAN]

Check IRS Pub. 535. 2020 deduction.

Business Start-Up Costs Start-up costs are amounts paid or incurred for (a) creating an active trade or business, or (b) investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and for the production of income in anticipation of the activity becoming an active trade or business. Qualifying costs. A start-up cost is amortizable if it meets both of the following tests. • It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). • It is a cost you pay or incur before the day your active trade or business begins. Start-up costs include amounts paid for the following. • An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. • Advertisements for the opening of the business. • Salaries and wages for employees who are being trained and their instructors. • Travel and other necessary costs for securing prospective distributors, suppliers, or customers. • Salaries and fees for executives and consultants, or for similar professional services.