Question

Franchise investment

Forum|Forum|2 years ago
February 5, 2024
1 reply
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I own an LLC that in 2023 invested in a franchise. The investment was $47,000. The business is on a cash basis for accounting. I liquidated my IRA to make that investment. Going through the business on , it won't allow me to deduct in full the investment. Without that deduction, I am being taxed on the IRA liquidation.

Can you help?

Not A Product Question

M

MinhT1

A franchise is an intangible asset which has to be amortized over 15 years. See this IRS document.

You can't deduct the entire cost of the franchise in the year of purchase.

Your IRA withdrawal is taxable and if you are younger than 59 1/2, also subject to the 10% early withdrawal penalty.

Unfortunately, you can't do otherwise.

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F

FrtzcatAuthor

Thanks and that is what I found. Doesn't make sense. The cash out in 2023 was over $89,000. I get the "intangible" asset amortization. Now, I paid $42,000 for the startup and training for the franchise in addition to the fee. Again, cash basis accounting considers that an expense and where can I post that in Turbo Tax?

Thanks for your help.

Frtzcat

M

MinhT1

Cash accounting only applies to ordinary income and expenses.

Investment in longer-term assets has to be depreciated or amortized over the useful life of the assets.

The $42,000 you paid for the business appears to be goodwill, which is also an intangible asset and has to be amortized. Training for the franchise must also be included in the cost of the franchise, unless it is ordinary training during the course of your business.

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