S Corp: Startup Costs and Depreciation

Discussion in 'Tax' started by law2255@gmail.com, Apr 6, 2006.

  1. Guest

    The IRS says that "Start-up costs include costs for the
    following items: Travel and other necessary costs for
    securing prospective distributors, suppliers, or customers."
    I would like to know if the purchase and use of computer
    equipment can be classified as such costs rather than as a
    depreciation. I do know about the section 179 expense
    election but I was curious about the flexibility of the
    "Start-up costs."

    Also, if you have equipment that you purchased and it is
    depreciated for a term of 10 years, what happens when you
    decide to close the business in year 3. Can the
    depreciation costs from years 4-6 be deducted from taxes in
    the following years?

    Thanks.

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    << and does NOT constitute legal OR professional advice. >>
    << >>
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    , Apr 6, 2006
    #1
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  2. <> wrote

    > The IRS says that "Start-up costs include costs for the
    > following items: Travel and other necessary costs for
    > securing prospective distributors, suppliers, or customers."
    > I would like to know if the purchase and use of computer
    > equipment can be classified as such costs rather than as a
    > depreciation. I do know about the section 179 expense
    > election but I was curious about the flexibility of the
    > "Start-up costs."


    Computers are equipment that must be depreciated. They are
    not "start-up" costs by any stretch.

    > Also, if you have equipment that you purchased and it is
    > depreciated for a term of 10 years, what happens when you
    > decide to close the business in year 3. Can the
    > depreciation costs from years 4-6 be deducted from taxes in
    > the following years?


    The treatment of equipment and other assets of a business as
    it disolves is determined by what kind of business it is,
    and what happens to those assets.

    Generally, depreciation just ends. The basis of that asset
    held by the business becomes the holding basis by say, the
    owner who kept the computer, desk, car, etc. If or when
    sold, there may be a gain or loss on disposition.

    If however, the business ends and you trash it (as in toss
    it in the dumpster), you can claim a loss on the disposition
    of the asset that you physically no longer have and received
    nothing for.

    --
    Paul Thomas, CPA


    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Paul Thomas, CPA, Apr 7, 2006
    #2
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  3. JMc Guest

    > The IRS says that "Start-up costs include costs for the
    > following items: Travel and other necessary costs for
    > securing prospective distributors, suppliers, or customers."
    > I would like to know if the purchase and use of computer
    > equipment can be classified as such costs rather than as a
    > depreciation. I do know about the section 179 expense
    > election but I was curious about the flexibility of the
    > "Start-up costs."
    >
    > Also, if you have equipment that you purchased and it is
    > depreciated for a term of 10 years, what happens when you
    > decide to close the business in year 3. Can the
    > depreciation costs from years 4-6 be deducted from taxes in
    > the following years?


    1) Fixed assets (i.e. your computer equipment) are not start
    up costs. You depreciate (or make a Section 179 expense
    election) your fixed assets.

    2) Depends on what type of business (incorporated, sole
    prop, partnership), and what is done with the equipment
    (distributed to owner, abandoned, sold, etc).

    a) If the asset is abandoned you take a loss on your books
    equivalent to the net book value of your asset (i.e. book
    cost less accumulated depreciation).

    b) If the asset is distributed from a corporation, the
    corporation would show the "sale" of the asset at fair
    market value. The gain or loss would be computed by taking
    the fair market value less the net book value. The
    recipient of the asset would have a basis in the asset equal
    to fair market value and a dividend (if C corp) equal to
    fair market value of the asset.

    c) If the asset is distributed from a partnership, the
    recipient would receive the asset and have a basis equal to
    the net book value of the asset when it was in the
    partnership.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    JMc, Apr 7, 2006
    #3
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