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A
alexwick
Employee
January 3, 2023
Question

Is the acquisition costs of clients tax deductible?

  • January 3, 2023
  • 2 replies
  • 0 views

Good morning, 

my wife started a cleaning business and had a friend that she was able to take over cleaning clients from. She paid her friend like $250 per client .i.e.  for about 40 clients. Is this acquisition cost 100% tax deductible ? not at all? or what is the rule here. We also acquired some clients after that through a service called thumbtack. Also here i assume they would be 100% deductible as a business expense. But wanted to get some feedback?
Thank you for your time and help!

 

2 replies

A
Anonymous_
Employee
January 3, 2023

@Rick19744 

 

I believe this would be a Section 197 intangible in the sense that your wife bought a book of business if the figure had been paid up front. In that event, the amount she paid would be amortizable over a 15-year period.

 

On the other hand, there could be other ways to view the transaction depending upon how the payments are being handled.

    A
    alexwickAuthor
    Employee
    January 3, 2023

    Duplicate post

    Rick19744
    Rick19744
    Employee
    January 3, 2023

    I agree with @Anonymous_ on the purchase of the cleaning business.

    Essentially you purchased the "assets" of the business, and these assets are intangibles.

    As noted, this cost will be amortized over a 15 year period.

    I don't have an understanding of what the purchase of clients via Thumbtack involves, so I can't provide any guidance on that component.

    *A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.
      A
      alexwickAuthor
      Employee
      January 3, 2023

      Thank you,

      I read here in this article as well...

      https://www.lawyers.com/legal-info/taxation/amortization-and-small-business-start-up-costs.html

      If i understand it correctly we could use 5k of it in teh first year and write the rest of equally over 15 years?

      Does that seem to be correct?

       

      Thanks for your time

      A
      Anonymous_
      Employee
      January 3, 2023

      The cost to buy the "business" (essentially $250 per account)) is amortized ratably over a 15-year period.

       

      This is not a start-up cost.

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