Question

Ross is a sole proprietor who started his business on June 1st. In May, he paid salaries of $7,000 and legal fees for the business formation of $4,500, before starting
his business.

How much can he immediately expense, if any, of startup cost and organizational expenditures?

Answer 1

Ross has started the sole proprietor business. The expense incurred on legal fees for business formation $4,500 and salaries amounting to $7,000.

Ross can claim all of this amount incurred as expense in the first year itself. He can claim $4,500 and $7,000 as business formation expenses, as these are incurred directly for business and there is no restriction regarding the claiming of this expense, incurred directly in relation to the business, even if incurred before the formal start of the business.