Question

In 2019, Pablo, who is not otherwise involved in the gas station business, spends $53,000 investigating the acquisition of a gas station. All costs are ordinary and necessary. Pablo acquires the gas station and begins business on Nov. 1, 2019. What amount can Pablo deduct in 2019 for the expenses incurred in investigating the acquisition of the gas station if Pablo makes an election to accelerate his deductions as much as possible?

The answer is not 2000!

Answer 1

A corporation can deduct up to $5000 of business startup costs under sec.195.The $5000 deduction is reduced dollar to dollar by the cumulative amount of start up costs exceeding $50000. The remaining start up costs can be deducted over a 15 year period beginning with the month in which active trade or business begins. Start up costs are costs paid or incurred in connection with investigating the creation or acquisition of an active trade or business or creating an active trade or business. To be startup cost the expenditure must have otherwise been deductible as an ordinary and necessary business expense under sec. 162. Expenses of investigating the creation or acquisition of a trade or business are known as investigatory expenses. They are the costs incurred in searching for and analyzing prospective business prior to making a final decision whether to acquire an existing business ,create a new business, or fo a business transaction altogether. The costs might be deductible as ordinary and necessary business expense because the costs would relate to expansion of existing business. Pablo can deduct up to $5000 then amortize the remaining expansion costs over 180 months