New business no income

[ILLMAS]

A colleague just called to ask me about a client of her, they opened up an business in 2016 (1120S), no income but with minor expenses like incorporation cost, advertising and other miscellaneous expenses under $3K, she asked me if they could just expense it, and I said it's probably best just to capitalize them as startup costs, but now I am having doubts.  If this was your client, would you just expense it? 

Thanks

[Lion EA]

Were they "open for business"?  If not, organizational costs and start-up costs to be amortized, right?

[TAXMAN]

I think if open for business and had no sale this would be amortized but could it it be written off under the start up rules as long as they were open for business?

[Jack from Ohio]

No income, no business.  When the first $ comes in, now there is a business.  Until then, all costs are startup costs.

Tax Prep 101 here...

[jklcpa]

28 minutes ago, Jack from Ohio said:

No income, no business.  When the first $ comes in, now there is a business.  Until then, all costs are startup costs.

Tax Prep 101 here...

I disagree.  The business activity starts when the business operations commences that will generate its operating revenue.  For example, if its a service or consulting business, the operations begins when services start being provided. For a retailer, business begins when the doors open to customers regardless whether or not a sale is made in its first days.

I open a tax practice on Feb 1 and meet with my first client on that day and begin working on a return. Even if the return isn't finished until the 10th and I don't get paid until the 20th, I still was open and operating on the 1st of Feb. 

[Lee B]

30 minutes ago, Jack from Ohio said:

No income, no business.  When the first $ comes in, now there is a business.  Until then, all costs are startup costs.

Tax Prep 101 here...

Not so fast, there are a number of court cases where businesses were advertising, knocking on doors etc and were considered to be in business. Myself, I was in business for almost a month before I received my first check from a client.

If you are actively open for business, ready to perform the services you intend to provide, then the expenses may be deductible.

[ILLMAS]

1 hour ago, Lion EA said:

Were they "open for business"?  If not, organizational costs and start-up costs to be amortized, right?

Good  question, the conversation was less than  3 minutes  and I  don't recall if they were actively looking for clients, but I will find out tomorrow.

 

Thanks to all