topic My husband bought a license for a software package in Dec 2018 for a business he launched in 2019. Can we report this as a 2019 expense? in Deductions & credits

My husband bought a license for a software package in Dec 2018 for a business he launched in 2019. Can we report this as a 2019 expense?

carrie — Sun, 01 Dec 2019 22:01:26 GMT

Re: My husband bought a license for a software package in Dec 2018 for a business he launched in 2019. Can we report this as a 2019 expense?

Carl — Sun, 01 Dec 2019 22:10:20 GMT

It's not a business expenses. Expenses incurred for a business prior to the business being "open for business" are classified as start up expenses. Start up expenses can not be claimed until the first year the business is actually open for business. It does not matter in what tax year the start up expense is incurred either. I've known business to have 3 years or more of expenses before they are officially "open for business" and that doesn't matter. The total of all startup expenses are claimed "as" startup expenses in the first year the business is open for business.

You are limited to deducting a maximum of $5000 in startup expenses in your first year open for business. If you have more than $5K of startup expenses, then the excess is amortized (not capitalized) and deducted (not depreciated) over the next 15 years of the business.

Generally, if your taxable business profit is less than $5K in that first year, then it only makes sense to deduct in that first year, the amount of your taxable profit so that the business will pay no taxes in the first year (except for self-employment taxes, of course.). Then the remaining gets amortized and deducted over the next 15 years.

Re: My husband bought a license for a software package in Dec 2018 for a business he launched in 2019. Can we report this as a 2019 expense?

taxmegeraldo — Mon, 02 Dec 2019 00:20:43 GMT

It's not a startup cost or expense....it's an asset, and an intangible asset, that will be subject to depreciation when placed-in-service at the time the business opens for business....it's either a section 197 intangible or another form depending on the type of software....most off-the-shelf computer software is not a section 197 intangible so you depreciate it over 3 years or you can use bonus depreciation or it may qualify for the section 179 deduction.

Re: My husband bought a license for a software package in Dec 2018 for a business he launched in 2019. Can we report this as a 2019 expense?

carrie — Mon, 02 Dec 2019 01:25:52 GMT

Thanks for the quick replies! This license for Solidworks is only good for one year and we have to renew at the end of the month, so it will really only be used in 2019. Would it still depreciate?