Can Taxpayer Deduct Startup Expenses for a new business in this situation?

[ETax847]

Prospective client incurred $4k in startup expenses for a new business that lasted 2 months.  She did not make any money in this business. She landed a W-2 job and folded the business.  Can her startup expenses be deducted on Sch C even though the business never earned a penny before folding?

[BulldogTom]

Facts and Circumstances.   Document, document, document.   Be ready to defend at audit.  You can distinguish the BS from a person who really wanted to start a business and make a profit.

IF the expenses were things like filing fees for SOS, software, letterhead, accounting and legal, things that are really business expenses that have receipts and cannot be used personally after the closing of the business, then I say you have a good argument.

If the startup expenses are a new iPhone, awesome computer and trips to resorts to hear about an awesome opportunity in a MLM company, then I would be very, very leery.

Tom
Longview, TX

[Catherine]

Tom has it exactly right. Document F&C. Were the expenses business specific is key, but exclusivity isn't all-or-nothing. For example, it's ok if the letterhead can later be used for grocery lists, but that's clearly not the purpose of letterhead. 

[Abby Normal]

Exploratory expenses are not deductible but since this business actually started operating (did it really?) then the expenses are deductible as start up costs.