Is the acquisition costs of clients tax deductible?

[alexwick]

Good morning, 

my wife started a cleaning business and had a friend that she was able to take over cleaning clients from. She paid her friend like $250 per client .i.e.  for about 40 clients. Is this acquisition cost 100% tax deductible ? not at all? or what is the rule here. We also acquired some clients after that through a service called thumbtack. Also here i assume they would be 100% deductible as a business expense. But wanted to get some feedback?
Thank you for your time and help!

[Anonymous_]

@Rick19744 

I believe this would be a Section 197 intangible in the sense that your wife bought a book of business if the figure had been paid up front. In that event, the amount she paid would be amortizable over a 15-year period.

On the other hand, there could be other ways to view the transaction depending upon how the payments are being handled.

[alexwick]

Duplicate post

[alexwick]

Thank you for the response.
Payment was made with a one time cashiers check.

[Rick19744]

I agree with @Anonymous_ on the purchase of the cleaning business.

Essentially you purchased the "assets" of the business, and these assets are intangibles.

As noted, this cost will be amortized over a 15 year period.

I don't have an understanding of what the purchase of clients via Thumbtack involves, so I can't provide any guidance on that component.

[alexwick]

Thank you,

I read here in this article as well...

https://www.lawyers.com/legal-info/taxation/amortization-and-small-business-start-up-costs.html

If i understand it correctly we could use 5k of it in teh first year and write the rest of equally over 15 years?

Does that seem to be correct?

Thanks for your time

[Anonymous_]

The cost to buy the "business" (essentially $250 per account)) is amortized ratably over a 15-year period.

This is not a start-up cost.

[Carl]

If i understand it correctly we could use 5k of it in teh first year and write the rest of equally over 15 years?

No, that's not correct. What you are citing applies to business start-up expenses. The purchase/takeover of a client list is not a start-up costs. It's an acquisition cost. Since you "acquired" what is essentially intangible assets, the total cost gets entered in the Business Assets section and amortized (not depreciated) over the next 15 years. So the cost will be deducted and not depreciated, in equal amounts over the next 15 years. Take note that the first year deduction will probably be pro-rated by the program to account for the fact that you did not have this business or the client list for a full 12 months of the tax year.

[Rick19744]

I agree with the follow-up responses.

As stated in my original response, and the others in response to your "article", you purchased intangible assets and those assets are amortized via straight line amortization over 15 years beginning in the month your wife started her trade or business.

If you input this correctly into TT, the software will handle this correctly.

[Hal_Al]

This reference seems to support the conclusion that you must  amortize, via straight line amortization over 15 years, the cost of the customer list (purchased intangible asset).  

https://www.thetaxadviser.com/issues/2007/apr/treatmentofcapitalizedcostsofintangibleassets-parti.ht...