Obviously when you launch a business there are many expenses that one will incur. Depending on the expense, and amount thereof, you may have to capitalize those Start Up Costs and then spread the actual cost over a number of years. This is called Capitalizing Expenses.
I recently received a call from a potential bookkeeping customer inquiring about some start up costs that they have both already paid and will soon be paying. These costs ranged from a computer to check printing to some attorney fees that will be paid. The individual was thinking that he could wrap all of these costs in 2015 and therefore have a fairly large loss that he could then write-off and offset his day job income. WRONG! These are all different types of expenses and need to be handled all a little bit differently. If you were to do as this individual suggested and expense them all out in 2015 it would be considered illegal and certainly would set himself up for steep penalties and taxes due at some point in the future.
I always cringe when a someone calls me out of the blue, inferring they will hire me to do their books, but when I ask some specific questions I realize that this is the type of customer I just don’t want. I don’t mind getting each and every deduction coming to my clients, but I draw the line when it’s illegal!
If you are thinking of starting up a business, please don’t make this mistake!
Attorney fees for setting up a company may need to be amortized over several years (10 or more), the cost of any fixed asset (computer) needs to be depreciated over the life of the asset, leaving only the office supplies, in this case the cost of printing some checks can and should be expensed out at 100% in the period it was purchased. A costly mistake for this person if indeed he does what he wants. I politely declined his request for me to do his books.
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