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I bought a franchise with 2 locations. One never opened.

I bought a franchise with...
I bought a franchise with 2 locations. One never opened. What can I do with the costs of leasehold improvements and equipment purchased for the location that did not open? Where is this referenced in IRS publications also as I can't seem to find the right one.
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Answered in 6 minutes by:
2/2/2009
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,132
Experience: Taxes, Immigration, Labor Relations
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If you did not incorporate the business - it is considered your solo proprietorship and generally - you should attach schedule C to your personal tax return to report business income and expenses.

 

Start-up cost - expenses you had before the business started - in general should be amortized over 15 years.

You can write off up to $5,000 in startup costs and another $5,000 in organizational expenses in the year that you start your business - thus in the first year you will deduct 1/15 part of the total expenses - and so on in following years.

If you haven't started the business yet - you may not deduct any start-up cost.

please see more details in the IRS publication 334 - http://www.irs.gov/pub/irs-pdf/p334.pdf

 

Please let me know if you need any help.

 

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Customer reply replied 8 years ago
I understand that start-up costs, etc. The issue I have is I understand that the money spent on the unopened store (which will never open) cannot be transferred to the operations of the other store as this equipment and location were never put into service. Is that the case, or does this really go on the schedule C. Thanks and that should be all I need to know.

If you tears both locations as ONE business - you do not need to account separately for each store.

In this case start-up costs should be combined and accounted only before the business started.

If you have any additional cost AFTER the business started - that is expansion cost - and not a start-up cost.

As start-up cost is amortized - so on the schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf - it is reported on the line 13

To determine the actual amortization amount - use the form 4562 - http://www.irs.gov/pub/irs-pdf/f4562.pdf

 

Expansion cost of the existing business is deducted as any other business expenses.

 

Lev
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