Can I deduct money used to purchase a business?

[siddjain1]

I am purchasing a business. Can I deduct the money used to purchase the business on my (personal) tax-return? On what form? The business is an S-Corp and a separate entity that will file its own taxes.

[pk]

@siddjain1   generally the  acquisition  cost of the "new" S-Corp is an expense reported on its filing but the S-Corps are generally  pass through  for tax purposes.  Or are you saying that you are a new share holder of an existing S-Corp ?

[siddjain1]

I am buying the S-Corp through an all stock deal.

[Mike9241]

Nothing you paid is deductible. What you paid is your beginning tax basis. It will increase by income items and decrease by expenses items and distributions.  Since you are buying stock, your outside basis may be different than the inside basis. There is no Section 754 step-up when dealing with an S-corp. So if you paid $100,000 and the S-corp that has an inside tax basis of $60,000, the extra $40,000 goes nowhere until you sell or it goes out of business. Things would be different if you did an asset purchase.  

[siddjain1]

Sorry I don't understand. Could you explain?

You say: It will increase by income items and decrease by expenses items and distributions.

What does It refer to? Is it my personal tax return? As I have already mentioned the S-Corp will file its own taxes separate from my personal tax return.

>Since you are buying stock, your outside basis may be different than the inside basis.

What is outside basis vs. inside basis?

>There is no Section 754 step-up when dealing with an S-corp. So if you paid $100,000 and the S-corp that has an inside tax basis of $60,000, the extra $40,000 goes nowhere until you sell or it goes out of business. 

??

[Mike9241]

You bought an S-Corp. stock. It files Form 1120-S. Its income net of some expenses and other items is reported on the K-1 that the S-Corp will issue to you. You are considered an employee and thus are required to take a salary and file payroll tax returns. Since you seem to know little about S-Corp operations and related tax obligations, find a good tax pro and sit down with them to determine your reporting obligations. If you mess up, the penalties and taxes could be substantial.  

I will provide some insight, but you still need to get a grasp on your filing and reporting obligations. This is beyond the scope of this forum. Outside basis = you bought stock, thus your tax basis is what you paid for the stock. It goes up or down depending on what's reported on that K-1 I mentioned. Inside basis = what's on the books of the S-Corp you bough which can be more or less than what you paid. Generally, this is the tax basis of its assets less liabilities. You do not have a new corporation because you bought stock. Rather, the old S-corp continues so you'll need prior filings.