Start up costs

Technical topics regarding tax preparation.
#1
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I have a question about capitalization of start up costs.

My client is a c corporation that was formed in early 2017. I am working on the corporation's 2017 initial tax return.

This corporation is going to operate a gaming (not gambling) web site. That will be its only business. During 2017, it expended about $1.7 million (which was raised from a small group of investors, none of whom received any remuneration). The expenditures included employee wages (for both regular employees and executives), Similar payments were made to subcontractors (who received 1099's) Money was paid to software developers. Money was expended to lease office space. Legal fees were paid. Funds were expended for travel, lodging, etc.

As of right now, the web site has not opened for business. Revenue from inception through today is zero. It is expected to commence business during the 4th quarter of 2018. A 'test version' of the site opened in March, 2018, but it does not accept payments. The web site was not up at all in 2017.

My question: what, if anything, can be expensed on the corporation's 2017 tax return? Or, do I simply capitalize 100% of the expenditures, pending the start of operations in 2018?

NOTE: I am not particularly interested in distinguishing between organization costs and startup costs - I am willing to address this issue on the 2018 tax return.

Thank you very much for your guidance.
 

#2
Coddington  
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This is addressed in the flush language of section 195(c)(1)(B). Section 163, 164, and 174 costs may be deducted. Everything else is capitalized as start-up costs under section 195, (or as organizational costs for the corp under section 248), until the business commences in 2018. Then those costs are deducted or amortized under the provisions of section 195 (or 248 as applicable).
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 

#3
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What type of costs are 163, 164 and 274?
 

#4
Nilodop  
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Interest, taxes, research (it's 174, not 274). Those are Code sections, as are 195 and 248. Good idea to read them, along with 162, 167, 168 and lots of others. And to get in the habit of starting with the Code on most of your research. TPT members are very helpful, but at least to me, it's scary when a tax pro does not know 163 and 164.
 

#5
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nostromcpa: Welcome to the best daggone tax pro forum this side of the planet Jupiter!! :D

Nilodop is just being crabby today because he's noticed that he's only 88 87 posts from having his post-odometer roll over to five digits. Ten thousand posts to this forum is awesome! But so's *two* - so keep coming back!! 8-)

And what's on the other side of Jupiter? I'll let you know when I get back. :P
 


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