Does Expense on Data qualify as Startup Cost?

[ndc24075]

In 2021, I bought a set of data to do some analysis of markets for my company that is incorporated in January 2022. The purpose of buying the data is to verify whether my ideas can work to develop some potential products or services if the company is really established. I wonder if the cost of the data can count as "Startup Cost" as it seems like it is for market survey. But I am not sure because I found on IRS's website, it also says

"Nonqualifying costs. Startup costs don't include deductible interest, taxes, or research and experimental costs." I am not sure whether "verifying ideas for product development" will make the expense ineligible.

Another thing to note is that I became a member of the company in May 2022 after the company is registered in January 2022. Will that cause any issue if the expense can be counted as startup costs?

[DianeW777 · Accepted solution]

Yes, you can count that as part of your start up costs. If you used this data to decide if the business could be viable and you did begin business operations later, the cost can be counted with other start up costs. All start up costs must be before the business actually opened for business.  After opening expenses to operate are deductible when paid.

The key factor is when the business actually opened for business and if you were one of the owners at that time.  If you joined the company after they began operations, then the cost you paid for data review and decision making must be added to your cost basis of your portion of the business.  This would be used when you sell your share in the future.

[ndc24075]

@DianeW777 Thanks for the prompt reply. I am not sure how "operation" is defined. The company is registered in January 2022 and remain inactive (i.e. no income and no expense) till I joined in May. I think it is safe to say the business was not in operation at that time before I joined, right?

[DianeW777]

Yes, I agree.  The business officially opened for business the day you joined, based on your information. In this case, I see no reason why you shouldn't include your costs as start up expenses.