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Video instructions and help with filling out and completing Which Form 4797 Expenditures

Instructions and Help about Which Form 4797 Expenditures

In this talk, we'll go over an example of how to amortize start-up costs for your business. The standard rule for amortization is to divide the intangible asset cost basis by 180 months and then take an expense each month. However, start-up costs have additional rules that I will cover in this example. Start-up costs are the costs incurred before the business actually begins operating. These costs would normally be deductible as business expenses, but they cannot be deducted because the business has not yet begun operating. Instead, start-up costs are recorded as a current asset in the month the business begins. You can deduct up to $5,000 of start-up costs in the first month. However, if the total start-up costs exceed $50,000, the initial $5,000 deduction must be reduced dollar for dollar by the amount that exceeds $50,000. If the total start-up costs are greater than $55,000, there is no initial deduction allowed. The remaining start-up costs can be amortized over 180 months. To calculate the monthly amortization expense, divide the total start-up cost by 180. This resulting amount is the monthly deduction that can be taken. Let's look at an example. Best Retail pays $54,000 in start-up costs before opening their retail store in October 2014. In 2014, the total start-up costs are greater than $50,000, so the initial deduction is limited to the amount exceeding $50,000. Thus, the initial deduction for 2014 in the first month is $1,000, calculated as $5,000 minus $4,000 (the amount exceeding $50,000). The remaining start-up costs to be amortized then amount to $53,000, calculated as $54,000 minus the $1,000 initial deduction. This $53,000 will be amortized over 180 months, resulting in a monthly amortization expense of $294.44. For 2014, we will take three months of amortization expense for October, November, and December. Multiplying the monthly amortization expense by...