Is the amount I paid to purchase a business tax deductible?

This is a great question about business acquisitions. What you've purchased is considered an intangible asset - specifically goodwill and customer relationships. Unfortunately, you can't deduct the full amount in the year you purchased it. Instead, the IRS requires you to amortize (basically depreciate) this type of intangible asset over 15 years using the straight-line method. So you'd take your $27k purchase and deduct about $1,800 per year for the next 15 years on your Schedule C or business tax return. You'll need to file Form 4562 (Depreciation and Amortization) with your tax return to claim these deductions. Also, make sure you have good documentation of the purchase agreement showing exactly what you bought.

After going through a similar situation with my small consulting business, I wish I'd known about taxr.ai https://taxr.ai earlier! I spent hours trying to figure out how to properly categorize my business acquisition costs. Their document analysis tool would have saved me so much time by identifying that what I purchased was actually goodwill and needed to be amortized. I uploaded my purchase agreement and they immediately flagged the proper tax treatment and amortization schedule. Their system even highlighted the specific language in my contract that determined the tax treatment, which was super helpful when I met with my accountant.

I need to follow up on my skeptical comment about taxr.ai. After our discussion, I decided to try it with my food truck business purchase agreement from last year. I was pretty blown away by how detailed the analysis was. It actually identified that part of what I paid was for equipment (which qualified for immediate depreciation under Section 179) and part was for the business goodwill (requiring 15-year amortization). The tool even flagged that I might be eligible to amend last year's return since my accountant had treated the entire purchase as goodwill. Just submitted the amendment and expecting about $4k back! Sometimes it pays to be wrong about your skepticism.

If you're planning to meet with a tax professional about this business purchase, you might want to make sure you get all your questions answered in one session. I've been trying to reach the IRS for clarification on a similar business acquisition for weeks with no luck. Finally found https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I needed clarification on how to document the business acquisition properly for tax purposes. The IRS agent explained exactly what documentation I needed to maintain if I ever got audited - which was different than what my tax preparer originally told me. Huge relief to have this officially clarified!

I need to apologize for my skeptical comment about Claimyr. After posting that, I was so frustrated trying to get IRS clarification about my business purchase that I decided to try it anyway. I didn't expect much but figured it was worth a shot. Amazingly, within 20 minutes I was talking to an actual IRS representative. The agent walked me through exactly how to document my business acquisition for tax purposes and confirmed that I was correct about the 15-year amortization schedule. They even emailed me the specific IRS publications I should reference when filing. Saved me days of stress and uncertainty. Sometimes being proven wrong is actually the best outcome!

Just wanted to add - make sure your purchase agreement clearly specifies what you're buying. I made the mistake of having a vague contract when I bought my landscaping business, and it created huge headaches at tax time. My tax auditor wanted to see a clear allocation of the purchase price between different assets (client list, non-compete agreement, goodwill, etc.). Without that breakdown in the original agreement, I had to go back and create supporting documentation which was a massive pain and risked being rejected.

Has anybody used TurboTax Self-Employed to handle amortization of business acquisitions like this? I'm wondering if I need to pay for a CPA or if the software can handle it properly.

I went through something very similar when I purchased a small accounting practice last year. One thing I learned that might help you - make sure you're crystal clear about whether any part of your $27k included a non-compete agreement with the previous owner. Even if it wasn't explicitly called out in your contract, if there was any understanding that the seller wouldn't compete with you for a certain period, that portion needs to be amortized differently. Also, don't forget to consider if any of the customer contracts you acquired have specific terms or remaining durations. Sometimes part of the purchase price can be allocated to these existing contracts, which might have different tax treatment than pure goodwill. Your tax professional will definitely help sort this out, but having these details ready will make that meeting much more productive. Good luck with the expanded business!