Capitalized or treated as startup/acquisition costs

Under Internal Revenue Code Section 195, costs incurred prior to the day the active trade or business begins are considered **startup expenditures**. Because Legacy Ridge has no revenue and is currently "sourcing" acquisitions rather than operating an established business, these wages generally cannot be deducted immediately on your 2026 Schedule C. Instead, these costs must be **capitalized**. Once the business officially begins operations, you may elect to deduct up to $5,000 of startup costs (subject to a phase-out if total costs exceed $50,000) and amortize the remainder over 180 months. Furthermore, wages specifically related to "sourcing business acquisitions" may fall under Section 263(a) as **facilitative costs**. Costs incurred to investigate or pursue the acquisition of a specific trade or business must typically be capitalized into the basis of the asset acquired rather than deducted as startup costs. While the wages are "legitimate," their tax treatment is dictated by the timing and nature of the activity. Until the entity moves beyond the "investigatory" phase into "active" operations, current year deductibility is restricted. *Note: If the 16-year-old is a bona fide employee of a parent-owned LLC, their wages are exempt from FICA/FUTA taxes.*