Tax experts... how can I go about claiming a small business purchase cost?

Question

I bought a small business at the end of last year (about 2 weeks before end of December 06). Can I deduct the business purchase price as an expense on sched. C? How do I go about doing that? Thanks in advance!

Answer 1

Can you claim the purchase cost? Yes, but it isn't quite as simple as "Place business acquisition costs on Line xx." The business purchase would be recorded on the Balance Sheet and the cost would be recovered in various ways due to "purchase price allocation."

Let's say, for example, that you bought the business for $500,000, with $300,000 allocated for the physical assets (machinery, equipment, etc), $75,000 for inventory, and $75,000 for the balance of accounts receivable over accounts payable.
The physical assets would be entered on your Balance Sheet as fixed assets to be depreciated over the asset life; the inventory would be accounted for in order to be sold; and the A/R and A/P would be recorded in order to be collected to paid as appropriate.

That leaves $50,000 left over; this amount is basically the value of the business and is often allocated to "Goodwill" or "Going Concern"; this amount would be amortized over a 15-year lifespan.

The potential complexity of this process means that most taxpayers will want a paid professional to help them out. If you don't already have an accountant, I would highly recommend finding one who can give you solid tax advice and help you get your accounting off on the right foot. Good luck!! :-)

Answer 2

You file a Schedule C for your business. For 06, you can depreciate the assets you purchased as part of the business, you can amortize some other costs. You get part of the cost, spread over a number of years.
Other costs, supplies, materials, utilities, rent etc. can be deducted. You would report any income from the business also.
For next year keep records of all income/expenses.

Answer 3

Surely you're kidding. If the teacher suggested that you'd be able to deduct the cost of the house in this scheme, I'd go and demand my tuition money back! If you sell the house after you get it fixed up, the cost of the house, plus many of the expenses of fixing it up (not including anything for your labor, by the way) would be deducted from the selling price when calculating your gain - that gain will be taxable. If you live in the house instead of selling it, then if you eventually do sell it, the original cost plus some of the renovation expense will also be deducted from the sales price to figure your gain. The law has changed in the last few years, though, to allow you to NOT pay taxes the first $250K of gain (if you're single) as long as you own the house for two years out of the five immediately prior to the sale, and live in the house as your main home for two of those same five years. So if you decide to live there, make sure you stay for at least 2 years so you can get the exemption from paying capital gains tax. Good luck with your project.

Answer 4

You cannot expense the purchase price, but if you bought any hard assets, you can certainly take a depreciation expense and if you paid "Blue Sky" or bought business lists or other things, you may have something to expense. The purchase contract will spell those things out.

Answer 5

no. the business purchase is an investment, not an expense. the cost will come into play when you sell the business in the future.

you would report any income and expenses from your business on Schedule C.

Answer 6

Sorry, no, that's not an expense but an investment.