Propietorship question

cjaykumar — Thu, 06 Jun 2019 10:07:11 GMT

My wife started a sole propietorship (as a DBA) in November 2016, but it opened for business on 1/1/2017. There are expenses for setting up with the City and County in 2016. Will these be treated as expenses for 2016 or 2017? Can these expenses be written off as a Loss, since she didn't have an income before 1/1/2017?

You can deduct the first $5,000 of business start up cost...

LeeM — Thu, 06 Jun 2019 10:07:12 GMT

You can deduct the first $5,000 of business start up costs and $5,000 of organizational costs and the rest must be amortized. The first $5,000 should be treated as expenses in 2016 or when they were paid. Those would be treated as a loss and could be deduct from either of your other income amounts if you are married filing jointly or carried over to the next year.

According to IRS Publication 535 (linked to at the bottom of the page), Chapter 7, costs you can deduct or capitalize, business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized. For information about amortizing start-up and organizational costs, see chapter 8.

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 or partnership.

https://www.irs.gov/publications/p535/ch07.html

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Propietorship question

You can deduct the first $5,000 of business start up cost...