Tuesday, February 6, 2007

Travel Or Start-up Costs

Hello June,

I have been a self-employed chiropractor for 28 years. I am taking a brief trip with my wife and daughters to Las Vegas. I have considered moving there to practice chiropractic. Would my expenses and my families' expenses be deductible if I could document investigation of health care environment, locations, visit other chiropractors, etc?

Craig from Minnesota

Hello Dr. Craig,

The expenses for your family members are not deductible. [If your wife were your employee, her expenses would be deductible in the same way as might yours.]

If you go to Las Vegas for business purposes, your expenses would fall into one of two categories: Travel or Start-up Costs.
The two posts below Expenses While Changing Work Locations and Travel Expenses should help you determine whether or not the expenses fall into the "travel" category.

If they don't fit the travel category, then consider start-up costs. Let's think of a practice in Las Vegas as a new business. Expenses prior to opening a new business are considered start-up costs. If the new business actually gets started, then you may deduct the expenses.

However, if the new business does not get started, the expenses you had in trying to establish yourself in business fall into two categories:

1. Exploratory or General: The costs you had before making a decision to begin or acquire a specific business. They include any costs incurred during a general search for or preliminary exploration of a new venture. These costs are personal and nondeductible. These include going to Las Vegas to check things out, as you described.

2. Investigative or Specific: The costs incurred in your attempt to acquire or begin a specific trade or business. These costs are capital expenses and you can deduct them as a capital loss. For instance if you paid an attorney or accountant to review a Las Vegas chiropractor's practice that you were thinking of purchasing.

Looking at the IRS guidelines on start-up costs for a business that never gets off the ground, it's quite clear that the agency wants to rein in people who have a notion to explore the possibility of going into business for themselves, but only as long as they can write off the "search" at the expense of their fellow taxpayers.

If a business never gets started then exploratory expenses never can be deducted; but specific expenses always can be deducted -- one way or another. Be aware that when the IRS says "specific business" it means just that -- that the costs are incurred trying to start a new business or buy an existing one. It does not mean exploring a specific type of business.

Therefore, someone aspiring to a new indie business can be assured of getting a tax deduction if he settles on a business and makes concrete moves toward starting it up, whether the business actually gets started or not.

No comments: