Allowable startup expenses

[DTS]

I have been trying to locate a detailed list of startup costs, but have been unable to locate a site that can give me what I need. Can someone provide a link that gives detailed allowable startup expenses?

I have a client that lived abroad for 4-5 months setting up vendors, etc. for his company here in US, then returned home to open his company. Is it possible to use a small percentage of housing expenses for startup? My thinking is that if he paid a hotel these expenses, he would be able to amortize them as travel.

Thank you,

Dennis

[erchess]

I'm curious

as to why he should not claim all his housing expenses. As you say, if he had stayed in hotels he would have included the entire hotel bill. If he rented a villa I would include the entire cost of the villa. If he bought a home I would include fair rental value of the home and remember to consider the tax implications if the home should be sold. Now of course that assumes that he and everyone with him worked 40 hours a week on matters relating to the startup. If that test was not met, surely we are dealing in part with a vacation and then I would have the answer to my question as to why only claim some of the housing expenses.

I am basing my opinion on the fact that every discussion I have seen of startup and organizational expenses has left me with the impression that there is plenty of wiggle room and that it would be difficult to list all possible startup and organizational expenses. In short I think he can deduct as a startup or organizational expense any expense that he actually paid or incurred prior to the business opening its doors and for which there is a rationally discernible business purpose.

[Luis Mopeo]

TTB, page 8-17.

"Amortizable start-up costs are those that could be deducted if they were paid or incurred to operate an existing business."

The issue of start-up costs isn't about what the expenses were, it's about when the expenses are recognized. You have the exact same questions about whether travel expenses are business or personal as you would with an operating business.

[OldJack]

The code for startup is a broad coverage, but within specific areas or limitation. However, it should be noted that startup expenses do not include actual organizational expenses under code §248, or §709. Also it does not include the purchase of intangibles assets covered by §197.

(c) Definitions
For purposes of this section -
(1) Start-up expenditures
The term "start-up expenditure" means any amount -
(A) paid or incurred in connection with -
(i) investigating the creation or acquisition of an active
trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the
production of income before the day on which the active trade
or business begins, in anticipation of such activity becoming
an active trade or business, and

(B) which, if paid or incurred in connection with the
operation of an existing active trade or business (in the same
field as the trade or business referred to in subparagraph
(A)), would be allowable as a deduction for the taxable year in
which paid or incurred.

The term "start-up expenditure" does not include any amount with
respect to which a deduction is allowable under section 163(a),
164, or 174.

[DTS]

Start-up

Thanks to all of you for your responses. I am glad to hear there is some latitude regarding them.

The reason I don't want to deduct ALL the housing costs is this fellow had his wife and baby daughter along. And, I doubt that all the time abroad was business. The amount I want to deduct is about 30%, which I felt was not excessive.

Dennis

[BOB W]

Thanks to all of you for your responses. I am glad to hear there is some latitude regarding them.

The reason I don't want to deduct ALL the housing costs is this fellow had his wife and baby daughter along. And, I doubt that all the time abroad was business. The amount I want to deduct is about 30%, which I felt was not excessive.

Dennis

Dennis> You should be allowed to deduct what it would of cost for one person to travel. In many cases the cost of one is greater than 30% of the total costs. A double room is not double the cost of a single room. The cost of renting a car is no greater expense for one than for the whole family. ( Gas may be a different story, but will depend if the wife used the car for personal use.) Is it possible that the wife was a part of the investigation process, much like a sec'ty would be assisting her boss?

Since you mentioned that some of the trip was personal, was the personal time less than half of the time spent away from home. If so, the travel expense there and home is deductible by him and not his family.

You would have to go item by item to come up to his expenses. If you don't want to do that and just go with the 30%, well you can do that as long as you think it is LESS than the actual deductible expense. This way if it gets audited you can introduce other trip expenses.

[DTS]

Expenses

Bob,

Thanks for your input on this. You pointed to areas I did not think through, such as the rental car and dwelling. I tried to be very clear to him what I wanted and he did provide me with what I asked for. Most of these expenses will not be able to be changed. However, I will call him this afternoon and go over a few of these areas and see if it is possible to increase a few of these expenses, with your reasoning in mind.

Thanks,

Dennis