Research and development (R&D) expenses are direct expenditures relating to a company's efforts to develop, design, and enhance its products. Certainly recipe tasting and costing would qualify as an R & D expense. Restaurant licenses, liability insurance, and the costs of inventory would not be considered R & D expenses because it does not directly relate in the development of new processes and would be reported as normal business expenses in your business.
The R & D expenses and normal expenses need to be reported in the year the expenses occur if you use the cash basis in your accounting. You can defer these expenses if you use the accrual method as your accounting method. This is especially critical if you have no income at this point but just expenses. Under the accrual method, you can defer reporting these expenses until you begin making money.
Most small businesses use the cash basis of accounting while larger corporations generally use the accrual method. In your scenario, if you use the cash basis, you would report the expenses in the first year, take the business loss. The only risk in doing this is that if your business takes a loss in 3 out of 5 consecutive years, then the business is classified as a hobby. This is the decision you must make if you wish to declare these expenses in the first year as the business is developing. This again is true if you sue the cash basis for accounting, which is preferable for a small business.
Let us know if this helps and reach back to us if you have additional questions.
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