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Ask R. Greg Paszkiewicz Your Own Question
R. Greg Paszkiewicz
R. Greg Paszkiewicz, Enrolled Agent
Category: Tax
Satisfied Customers: 357
Experience:  9 years preparing tax returns - Marietta, GA
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deduct lost investment funds

Customer Question

I spent a lot of money to start a business that never got going. How can I deduct the money I spent for the business plan, consultants, engineers, computers, etc. on my personal income taxes?

I have invested over $150,000 of my own money in a business venture to build a golf course. I developed a business plan, hired a consultant to perform a feasibility study, and engaged a design firm to make preliminary site routing plans and civil engineering drawings. I was unable to secure adequate financing for the project and it has been abandoned. Is there any way I can deduct some of these expenses from my personal taxes?

I am on a permanent disability pension and collect Social Security disability payments. My wife is a registered nurse. I have drawn money from my own and my wife's 401(k) plans for these expenses. Our combined income is around 100k.
Submitted: 11 years ago.
Category: Tax
Expert:  R. Greg Paszkiewicz replied 11 years ago.
I am assuming you never formed a corporation, LLC, etc for this business so it will have go on your personal return. The way the law is written you cannot deduct the costs you had before you made the decision to pursue your specific business (investigatory costs) but the costs you had in your attempt to go into business should be capitalized as organizational costs which would then be written off when the business was abandoned (as capital losses). Given the high level of expenses involved and the much higher chance that this kind of deduction will be questioned by the IRS I would highly recommend that you find a qualified tax professional to help you with this it will be worth the money.
Customer: replied 11 years ago.
Reply to R. Greg Paszkiewicz's Post: Thank you. XXXXX would like to deduct the expenses from my personal taxes as organizational costs when the business was abandoned. These costs were accrued over the past 3 years. Would it be beneficial to have a tax professional re-open my previous returns or are we limited to the current tax year?

What tax code section would I review for this deduction?
Expert:  R. Greg Paszkiewicz replied 11 years ago.
This situation is mentioned briefly in the opening section of Pub 535 which you can view at www.irs.gov . The big loss would occur in the year you abandoned the project but some expenses and the establishment of the business should have been documented the year you started it. Whether previous years need to be re-opened or not I would leave in the hands of your tax advisor.

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