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Old 11-28-2016, 01:13 PM
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capitalize vs expense

Question:
We are a start up, filing for the first time. We are in the process of developing senior living apartments. The deal will hopefully close next tax year. I have paid an individual to create a pro forma, and do a market study etc. Should these be an expense or capitalized? Thanks!



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Old 11-29-2016, 09:37 AM
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Quote:
Originally Posted by shm1133 View Post
Question:
We are a start up, filing for the first time. We are in the process of developing senior living apartments. The deal will hopefully close next tax year. I have paid an individual to create a pro forma, and do a market study etc. Should these be an expense or capitalized? Thanks!
it depends; aslongfas your biz entity type is either a corp, s- or c ?corp or partnership, MMLLC,NOT SMLLC, then you can claim both startup costs and organization costs on your return;however if your biz type is a sole proprietorship or a SMLLC, then no organizational costs are claimed on your return. In general, for the most part, business start-up costs and organizational costs must be deducted over a 180-month (15 year) period. For example, if your start-up costs were $18k, and you started your business on July 1, 2016, you would be able to deduct $600 in 2016 for your start-up costs. ($18k divided by 180 months = $100 per month. If started in July, the business will be operating for six months in 2016.). however, the good news is that the tax law now allows you to deduct in your first year of operation up to $5k each for biz start-up costs and organizational costs for a total deduction of $10k. This basically allows you to receive the tax benefit from the deduction all at once rather than having to realize the benefit over a 15-year/180mo as said above, period.But, there is one exception to be aware of, and it?s a bit complicated: the amount of start-up costs or organizational costs that you can elect to deduct in your first year (normally $5k) is reduced by the amount that your total start-up costs or organizational costs exceed $50k.so unless the total costs is more than $50K,you can claim $10K (45k for organizational cost, $5K for start up cost(aslongas your biz entity type is a corp or MMLLC.read far below paragraphLet?s say you start the construction biz, and your start up costs total $53K. As such, the total amount you can deduct in the first year is reduced by $3k (because $53k exceeds $50k by $3k). Thus, instead of being able to deduct the usual $5k/$10K for start-up costs/organizational costs, you can only deduct $2k in your first year of operation. Your remaining $51k of start-up costs will have to be deducted over 180 months. So I mean Unless you incur a very large amount (greater than $50k) in organizational costs or start-up costs, you can deduct $5k/$10K)as a corp/MMLLC partnership I mean) of each in your first year of operation. Assuming you are a sMLLC having $20k of start up expenses in 2016 before Sep when you started your business, you elect to deduct, under section 195 of the tax law, $5k of startup costs and amortize the remaining $15k of start up costs over 180 months beginning in September 2016. This is the month in which your business started.if yuare a corp or MMLLC then you can claim the whole of $10K and need to amortize the remaining $10k of start up costs over 180 months beginning in Sep 2016.



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Old 12-01-2016, 02:14 PM
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Question.

Thanks for the reply. We have a c corp doing real estate developing/investing. We have 810 in organization costs. Then we paid a consultant a series of invoices to do a pro forma to see if a project would be a good investment. We paid him to find other investors to get the project off the ground. We paid him to try and help find a bank to do the deal. The deal finally a couple weeks ago became a "go". We signed purchase agreements. And received LOI from investor. Should the consulting fees that we paid him throughout the year be expensed or capitalized? Thx!



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