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jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3159
Experience:  I've prepared all types of taxes since 1987.
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For An Scorp who has opened for business on Jan 8th 2011 and

Resolved Question:

For An Scorp who has opened for business on Jan 8th 2011 and incurred expenses through 2010 up until the day of opening, how would they expense these cost.

The cost consist of equipment, furniture, carpentry, as well as legal, and professional services. Would all expenses be lumped together and the 1st 5000 expensed in 2011 and the remainder capitalized over 15 years (treatment of start up cost), or should each piece of equipment be depreciated based off its useful life? In the case of depreciation how do you expense the legal fees and does it matter that they were incurred in 2010?
Submitted: 5 years ago.
Category: Tax
Expert:  jgordosea replied 5 years ago.



All of the expenses that are not for assets (assets including furniture, equipment, buildings, leasehold improvements and other tangible property) will indeed be grouped together and treated as start-up expenses.


Unless the legal fees are connected with an asset (such as franchise fees or a property) they will be included in the start-up expense group or as organizational costs. If the legal fees apply to a particular asset those fees would be part of the cost of that asset along with the cost, sales tax, delivery and installation of the asset.


Cost of an asset will be set up to depreciate using the applicable class life for each asset beginning when the asset is placed in service (presumably 01/08/2011).


Whether it was for the cost of an asset not yet in service or for start-up group expenses it does not matter in what year the expenses were incurred or paid since it is the start of business (or date placed in service) that determines the date of the start of the deduction and all costs up to that date must be included (and deducted prior to that date).


For more details, please see Business Start-Up Costs

"To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 and an accompanying statement (explained later) to your return for the first tax year you are in business. If you have both start-up and organizational costs, attach a separate statement to your return for each type of cost."


Please ask if you need clarification.


Best wishes for your new business.




Edited by John Gordos EA on 1/4/2011 at 1:33 AM EST
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