Capitalization and Start-Up Expenses

Launchpad McQuack

Well-Known Member
I was reading the Schedule C instructions, and I saw this....
Schedule C Instructions said:
...if the payment of an expenditure creates an asset having a useful life that extends beyond 12 months or the end of the next taxable year, it may not be deductible or may be deductible only in part for the year of the payment. See chapter 1 of Pub. 535.

Would I be correct in interpreting this to apply to a cell phone, as it has a useful service life of more than a year?

This got me reading Publication 535, and it says...
IRS Publication 535 said:
You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called "capital expenses." Capital expenses are considered assets in your business. In general, you capitalize three types of costs.
  • Business start-up costs (see Tip below).
  • Business assets.
  • Improvements.
Cost recovery. Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. These recovery methods allow you to deduct part of your cost each year. In this way, you are able to recover your capital expense.

But back in the Schedule C instructions it says...
Schedule C Instructions said:
If your business began in 2018, you can elect to deduct up to $5,000 of certain business start-up costs. Your remaining start-up costs can be amortized over a 180-month period, beginning with the month the business began.

Back in Pub. 535 again, it says...
IRS Publication 535 said:
The costs of getting started in business, before you actually begin business operations, are capital expenses.

If you go into business. When you go into business, treat all costs you had to get your business started as capital expenses. Usually, you recover costs for a particular asset through depreciation. Generally, you cannot recover other costs until you sell the business or otherwise go out of business. However, you can choose to amortize certain costs for setting up your business.

So to put this in context, I started driving for Uber in November 2018. Prior to driving for Uber, I did not have a cell phone at all. I decided that I wanted to start driving for Uber, so I selected a cell phone that I thought would be appropriate for that purpose, I purchased the phone, and I got a data plan. I purchased insulated delivery bags (I drive for Uber Eats, no passengers). Then I started driving.

As I interpret the stuff above, everything up until I actually started driving would be considered start-up costs? And the cell phone and delivery bags would be considered business assets because they have a useful life of more than a year? That means I have to depreciate them? I can't just deduct the costs that I paid on my 2018 Schedule C?

All of those statements end with question marks because I'm not sure if anything that I said is actually correct.
 

UberTaxPro

Well-Known Member
Sponsor
I was reading the Schedule C instructions, and I saw this....



Would I be correct in interpreting this to apply to a cell phone, as it has a useful service life of more than a year?

This got me reading Publication 535, and it says...



But back in the Schedule C instructions it says...



Back in Pub. 535 again, it says...



So to put this in context, I started driving for Uber in November 2018. Prior to driving for Uber, I did not have a cell phone at all. I decided that I wanted to start driving for Uber, so I selected a cell phone that I thought would be appropriate for that purpose, I purchased the phone, and I got a data plan. I purchased insulated delivery bags (I drive for Uber Eats, no passengers). Then I started driving.

As I interpret the stuff above, everything up until I actually started driving would be considered start-up costs? And the cell phone and delivery bags would be considered business assets because they have a useful life of more than a year? That means I have to depreciate them? I can't just deduct the costs that I paid on my 2018 Schedule C?

All of those statements end with question marks because I'm not sure if anything that I said is actually correct.
As I interpret the stuff above, everything up until I actually started driving would be considered start-up costs?
COULD BE BUT THEY DON'T HAVE TO BE START UP COSTS, THE DAY YOUR BUSINESS STARTED IS NOT NECESSARILY THE DAY YOU STARTED DRIVING. UNTIL YOU GET TO 5K WITH THESE COSTS IT DOESN'T MATTER TAX WISE WHAT YOU CALL THEM.

And the cell phone and delivery bags would be considered business assets because they have a useful life of more than a year?
NO, ANYTHING UNDER $2500 CAN BE AN EXPENSE AND EVEN ITEMS OVER $2500 CAN BE 100% DEDUCTED USING SECTION 179 UP TO YOUR INCOME LEVEL (CAN'T GO BELOW 0 INCOME WITH 179)

That means I have to depreciate them?
NO, YOU CAN EXPENSE THEM IN 2018
 
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