Expenses for startup that never launched

[noirgrim]

I wanted to start a business, and paid for an attorney to draft the articles of organization, and a marketing company to help with the name and logo. I also purchased a website and hosting plan. Everything ended up falling through, though. From what I read, it looks like I may be able to write off at least some of these expenses as a capital loss. Is this true? What can I write off, and where do I put it?

Thanks!

[IsabellaG]

According to the IRS: 

If your attempt to go into business is unsuccessful.   If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories.

1. The costs you had before making a decision to acquire or begin a specific business. These costs are personal and nondeductible. They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility.

2. The costs you had in your attempt to acquire or begin a specific business. These costs are capital expenses and you can deduct them as a capital loss.

You would report that in Turbo Tax Premier, under Federal Taxes> Wages And Income> Investment Income>Stocks, Mutual Funds, Bonds, Other

You would report that the type of investment you sold was "everything else." and continue entering your information.

https://www.irs.gov/pub/irs-pdf/p535.pdf

http://www.bizfilings.com/toolkit/sbg/tax-info/fed-taxes/start-up-costs-and-organizational-expenses....

[Royston]

Similar fact situation as above, but I have questions about "continue to enter your information" after you've reported type of investment sold was "everything else."

What is the property "sold"?  Does one simply enter "Unsuccessful attempt to purchase a specific business" or should one enter the name of the business?

What is the date the property is bought and sold?  Could one put the date of the letter of intent as the date bought and the date the transaction fell apart as the date sold?

And would "cost basis" simply be the amount of capital expenses?

[AnnetteB6]

The information you suggested for filling out the details of the loss sounds reasonable to me.  It would probably be good to show the name of the business you were going to purchase since that would match your letter of intent that you will keep for your records in the event that the IRS requests any additional details.  

@Royston

[aacdemay1]

What if this is a partnership and these were costs paid to a consultant to determine the viability of the enterprise that they ended up not going through with?

[ZoltanB45]

Sounds like "research and development" costs and if it was indeed a partnership (it was organized as a partnership entity), you would write it off that first year on the 1065 (informational return for a partnership).  That loss would flow through to your personal tax return.

[aacdemay1]

We could not deduct them in year 1 since the trade or business activity did not commence.

[RobertB4444]

Then deduct them in the first year that you file a tax return (year one is the year that you commence).

[aacdemay1]

Thank you for your reply but you can't take the deduction until the trade or business begins.  Nothing was done after the consultant did its feasibility study.

[JohnB5677]

@IsabellaG had it right from the beginning.  The IRS publication on this topic is IRS Publication 535.

Page 26 Business Startup and Organizational Cost

Page 28 Starting a Business

Page 29 Business Startup Cost

This will help you determine the capital losses.