Judy, the owner of a very successful restaurant chain, is exploring the possibil

Question

Judy, the owner of a very successful restaurant chain, is exploring the possibility of expanding the chain into a city in the neighboring state. She incurs $38,000 of expenses associated with this investigation. Based on the regulatory environment for restaurants in the city, she decides not to expand. During the year, she also investigates opening a hotel that will be part of a national hotel chain. Her expenses for this are $54,000. The hotel begins operations on November 1. Determine the amount that Judy can deduct in the current year for investigating these two businesses.

Explanation / Answer

Business start up costs should be treated as capital expenditure and can be amortized over a period of 180 months. Judy can write off entire $38,000 as expense relating to failed investigating expense in the previous year. Regarding the successful experimental costs, she has to show $54,000/180 = $300 per month as deduction in the current year.

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