Tomas is currently in the pie making business where his company bakes both special order pies for parties and mass produced pies for grocery stores. Tomas thinks that his business expertise will lend itself to a catering business and so he has spent considerable time in the last few months looking into the catering business, to determine whether he should buy an existing business or start his own. He has incurred some significant costs from his lawyers and accountants for various advice with respect to the potential new venture. The legal and accounting fees to date have been $55,000. After careful consideration, Tomas finalizes his decision to start his own catering business on September 1, 2016. He incurs the following costs during 2016. He loans some of his own pie staff to the new business in order to get it going. Tomas gets his first catering job on December 20, 2016 paying him $10,000 total. He bought the equipment and the truck on October 1, 2016. Tomas hired his first catering staff in September. The catering salaries were incurred ratably throughout the period.
Legal/accounting (same as above) $55,000
Loaning his pie staff time $15,000
Purchasing of catering equipment $75,000
Advertising $8,000
Salaries of newly catering staff $16,000
Cost of catering job $8,000
Truck purchase $25,000
Required: Decide what to do with each of the expenditures mentioned above for income tax purposes. Explain how much you think Tomas can deduct during 2016 and how much we will be able to deduct, if any, in 2017 and 2018. You must support your reasoning on what you decided to do with each cost.