Thank you in advance for your answers. Here is my question:
If a franchise is bought in 2010 for 10 years (service industry business) with the obligation to open 10 outlets during this period, the franchise fees are paid upfront.
The amortization of the franchise fee is over the whole period (10 year).
The first two years only one outlet will be opened, in the P&L statement of the first outlet am I supposed to account for the whole franchise fees amortization (franchise fee/10) or I should only take the part relative to the outlet (franchise fee/10/10) and the balance will be accounted for when the other outlets will be opened?
If the franchise fee is part of the start-up costs for a new business, you can deduct $5,000 of the total start-up costs currently and the remaining costs over a 15 year period (not 10 years). The $5,000 current deduction allowed will be reduced if the total start-up costs exceeds $50,000.
answered 08 Jul '10, 18:31
I do not believe that franchise fees are part of the start-up costs of a new business under the IRS definition of start-up costs. Franchise fees are amortizable - which means that the expense should be taken in the correct tax year or risk losing the deduction for that year. As to how to account for the franchise fee expense with only one outlet open, it is an expense of the organization as a whole and not just one outlet. Almost like rent expense for corporate headquarters, etc.
Bob Darden, CPA in Norcross, GA
answered 14 Jul '10, 14:46