Jim, an employee, decided he wanted to be in business.

He spent $15,000 examining the industry that included a company called ADG and then identified ADG as his acquisition target. He then entered into a purchase contract and spent $35,000 in legal, accounting, and other expenses. The purchase failed.

How does he treat, for federal income tax purposes, the $50,000 he spent?

Start-up Failure

Had Jim acquired ADG, he would have written off the $15,000 as a start-up expense.

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