Sched C Start Up Costs and Form 4562.

[ktkeller2005]

Hello,
My client is an RN and started a freelancing business as an RN legal consultant. She didn't have any income from freelancing last year, just W2 income. She did incur over $11k in start up costs. I understand that she can deduct up to $5000.00 in start up costs, and amortize the rest on Form 4562.

I'm just not sure as to how to report this on the Schedule C - do I itemize each expense up to $5k, or do I do one lump sum? Also well as how to report it on Form 4562? If anyone can give me advice, I would really appreciate it.

Thank You.

[Skate1968]

KT,
Would the amortization costs that you speak of go on the bottom of page 2 of the 4562? That would be my first guess but i'd have to double check the instructions to be certain.

[Jiggers]

Start up expenses

You just deduct the $5,000 on the Schedule C.

The excess you have to amortize on the back of the 4562. You must also attach an election to do this. See your TaxBook 24-10 for the election to be made.

Also see the instructions for 4562.

[ChEAr$]

That much?

Hello,
My client is an RN and started a freelancing business as an RN legal consultant. She didn't have any income from freelancing last year, just W2 income. She did incur over $11k in start up costs. I understand that she can deduct up to $5000.00 in start up costs, and amortize the rest on Form 4562.

I'm just not sure as to how to report this on the Schedule C - do I itemize each expense up to $5k, or do I do one lump sum? Also well as how to report it on Form 4562? If anyone can give me advice, I would really appreciate it.

Thank You.

That much in start up costs? I can't thing of such for just an RN who's going to be
a consultant. Perhaps you're including some equipment in "start up costs"? If so,
back out and depreciate said equipment.

[OldJack]

I believe that the deduction of startup or organizational costs must first be entered on form 4562, Part VI, with an appropriate "election" to write-off up to $5,000 for each, subject to recapture (see 2nd quote). Of course the expense is then carried forward to your 1040 Sch-C or as "other expense" on other business forms. This is much the same concept as 1st year write-off under code §179.

Start-up and organizational costs.
You can elect to amortize the following
costs for setting up your business.
• Business start-up costs (section 195).
• Organizational costs for a corporation
(section 248).
• Organizational costs for a partnership
(section 709).
For costs paid or incurred before
October 23, 2004, you can elect an
amortization period of 60 months or more.
For costs paid or incurred after October
22, 2004, you can elect to deduct a
limited amount of start-up or
organizational costs. The costs that are
not deducted currently can be amortized
ratably over a 180-month period. The
amortization period starts with the month
you begin business operations.
Attach the statement required by the
appropriate Code section and related
regulations. If you have both start-up and
organizational costs, attach a separate
statement for each type of cost. See Pub.
535 for more details.
The statements required to make the
elections must be attached to Form 4562
and filed by the due date, including
extensions, of your return for the year in
which the active trade or business begins.
If you timely filed that return without
making the election, you can still make
the election on an amended return filed
within 6 months of the due date,
excluding extensions, of that return. Write
“Filed pursuant to section 301.9100-2” on
the amended return.

Business Start-up and Organizational Costs -
.....
.....
Recapture. This deduction may have to be
recaptured as ordinary income under section
1245 when you sell or otherwise dispose of the
property that would have received an addition to
basis if you had not elected to deduct the expen-
diture. For more information on recapturing the
deduction, see Depreciation and amortization
under Gain Treated as Ordinary Income in Pub-
lication 544.