Business Start-up Costs and Business Operations Start Date

[workdog3]

What is the name of your state (only U.S. law)? FL

I have a couple of questions related to my business start-up:

1. Can lunch and dinner meetings to discuss a business start-up be capitalized as start-up costs?

2. What date would you say business operations for Company A began? I'm trying to determine if the advertising and sales costs to garner investor interest can be expenses rather than capitalized.

9/1/14 - We begin to organize the business and hire a lawyer to legally form Company A who business seeks to collect investor fund and invest in futures markets.
11/1/14 - Company A is legally formed.
1/1/15 - Advertising and sales pitches to gather potential investors begins.
6/1/15 - Subscriptions for new investment fund (Partnership B) managed by Company A are received.
7/31/15 - Partnership B is formed and investor funds are closed.

Thanks in advance for the help.

 

[Silverplum]

What is the name of your state (only U.S. law)? FL

I have a couple of questions related to my business start-up:

1. Can lunch and dinner meetings to discuss a business start-up be capitalized as start-up costs?

2. What date would you say business operations for Company A began? I'm trying to determine if the advertising and sales costs to garner investor interest can be expenses rather than capitalized.

9/1/14 - We begin to organize the business and hire a lawyer to legally form Company A who business seeks to collect investor fund and invest in futures markets.
11/1/14 - Company A is legally formed.
1/1/15 - Advertising and sales pitches to gather potential investors begins.
6/1/15 - Subscriptions for new investment fund (Partnership B) managed by Company A are received.
7/31/15 - Partnership B is formed and investor funds are closed.

Thanks in advance for the help.

You don't have an accountant?? You are running an investment business and won't hire an accountant??

This must be homework.

 

[FlyingRon]

Lunches even if they were a legitimate business expense are not "capitalizable."
Likewise, advertising is always expensed.
Business start date is the fairly arbitrary. You can set it as early as you're doing anything and as late as your first tangible outlay/income.

 

[tranquility]

Lunches even if they were a legitimate business expense are not "capitalizable."

Do you have a citation? I thought the question reasonable.

Likewise, advertising is always expensed.

No.

Business start date is the fairly arbitrary. You can set it as early as you're doing anything and as late as your first tangible outlay/income.

Again, a cite? It is certainly a facts and circumstances argument.

 

[davew128]

Do you have a citation? I thought the question reasonable.
No.
Again, a cite? It is certainly a facts and circumstances argument.

I'm with Tranq. Until the business is operational, everything is capitalized, its just a matter of where: Fixed asset, startup, other intangible, or organization or partnership formation costs.

 

[LdiJ]

I'm with Tranq. Until the business is operational, everything is capitalized, its just a matter of where: Fixed asset, startup, other intangible, or organization or partnership formation costs.

I am going to agree with you and Tranq as well.

 

[workdog3]

Thanks for the replies. I assume since they're meetings, the dinners can only be capitalized at 50%.

As for the start date, I would argue that since we're in the business of managing investor money, the act of soliciting investors would be part of those operations, even if the actual money managing doesn't begin until later. Does that seem reasonable?

 

[tranquility]

https://www.law.cornell.edu/uscode/text/26/195

(c) DefinitionsFor purposes of this section—
(1) Start-up expendituresThe term “start-up expenditure” means any amount—
(A) paid or incurred in connection with—
(i) investigating the creation or acquisition of an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and
(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.
The term “start-up expenditure” does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174.
(2) Beginning of trade or business
(A) In general
Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.

For a general discussion, see: https://www.irs.gov/pub/irs-wd/9901004.pdf

For the regulations, start at: https://www.law.cornell.edu/cfr/text/26/1.195-1

While your questions seem easy, they are not. I love to answer tax questions but I hate being wrong. If you are talking about any serious amount you need to talk with a professional who can help you prepare your argument if the IRS ever comes calling.

 

[workdog3]

While your questions seem easy, they are not. I love to answer tax questions but I hate being wrong. If you are talking about any serious amount you need to talk with a professional who can help you prepare your argument if the IRS ever comes calling.[/QUOTE]

Good advice. Thanks!