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ABC Roofing Company is investigating two businesses during March 2020
ABC Roofing Company is investigating two businesses during March 2020. They are investigating acquiring XYZ Roofing Company. They are also investigating Cupcakes, Etc. Bakery, ABC Roofing expends $20,000 investigating XYZ Roofing Company but DOES NOT acquire them. ABC Rooting expends $5,000 investigating Cupcakes, Etc. Bakery and DOES acquire them in November, 2020. What amounts can ABC Roofing Company deduct from these investigative expenses? In what year can they deduct it?
Expert Solution
Since ABC roofing and XYZ roofing appear to be engaged in similar businesses. The investigation expenses of $20,000 are deductible for ABC roofing. This is irrespective of the fact that they didn't acquire the business of XYZ roofing. The period in which these expenses are deductible depends upon the basis of taxpayer, cash or accrual. In case of cash basis taxpayer, expenses are deductible in the year of payment. In case of accrual basis taxpayer, expenses are deductible in the year in which they are incurred.
Since the ABC roofing does acquire the business of Cupcakes etc. Bakery, the investigation expenses of $5,000 are also deductible.
Had they not acquired the business of cupcakes etc. Bakery, these expenses of $5,000 wouldn't have been deductible.
The period in which these expenses are deductible depends upon the basis of taxpayer, cash or accrual. In case of cash basis taxpayer, expenses are deductible in the year of payment. In case of accrual basis taxpayer, expenses are deductible in the year in which they are incurred.
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