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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I have a coaching business obtained training and materials

Customer Question

Customer: hi i have a coaching business obtained training and materials to use to help my clients before I actually had a EIN . I am now earning money as a coach but the IRS is claiming these expeneses need to be capitalized as start up prior to being in a business. what determines this?
JA: Thanks. Can you give me any more details about your issue?
Customer: yes irs is stating I need to capitalize versus expenes travel meals and entertanime and other expenses deucted on scheulde c. they are saying based on my statement that I was developing and actively involvoved in createing and coach the business the costs that I have before I actually began operating as a business are capital expenses.
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Submitted: 11 months ago.
Category: Tax
Expert:  Lev replied 11 months ago.

Startup expenses are expenses paid BEFORE the business started - these are capitalized and you will be able to deduct ONLY after the business started.

If the business is not started yet - nothing is deductible.

It doesn't matter when you applied or received EIN for that purposes.

However - you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business started. The rest must be amortized.

So - it is VERY critical to determine WHEN the business started.

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation.

Expert:  Lev replied 11 months ago.

Under IRS regulations - the business is considered as started if you have goods or services for sale.
That is very critical point.
Generally - if you already had sale activities and some revenue - the IRS accepts that as your business has been started.

Expert:  Lev replied 11 months ago.

Please see more details in the IRS publication 334 -

http://www.irs.gov/pub/irs-pdf/p334.pdf

To differ start-up cost and operational expenses you need to know when the business actually started. The first sale transaction is would be a good indication that the business started. But it is not the only indication. If you have a manufacture business - it is started when the manufacture process is started.

Does that answer your question?