Business losses for expenses incurred by a foreign contractor

Question

I am a resident of California (Green Card holder), and started a new business in 2018 to evaluate an idea I had. It was not registered in state of CA as I was not sure how far the idea can go. Anyway, I spent some money paid in cash to  consultants in India by transfering money to a family member and route them to the consultants.This was to help develop an app and I was going for speed. I have the receipts from the Indian consultants in Indian currency but they are small group, so are not able to help much in providing any additional documentation.

Can I claim these expenses as business loss for 2018 and if so, what form should I file? What documentation will I need to keep in case IRS decides to audit and request documentation? This is new to me and as I am bootstrapping with my own savings, any help is appreciated.

S Spring · Answer

A proprietor business uses a Schedule C.

Here is a link where marketed software is noted as capitalized during development and expensed while marketed. That's true when the development is known to be technically feasible:

https://www.withum.com/resources/tech-companies-deal-software-development-costs-insights-cpa/

Then software that is not marketed is expensed during the planning stage, capitalized during the development stage, and expensed during the operational stage.

It really seems very similar.

Of course a capital expense is taken as a yearly depreciation amount while an operating expense is taken fully in the year incurred.

Business losses for expenses incurred by a foreign contractor

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