The fees you paid to the consultant to determine the amount of the credit are operating expenses and should be recorded as expenses, just like any other charge for accounting services or temporary service. You cannot capitalize on that type of commission under GAAP or for US tax purposes. Costs that are direct and clearly incremental must be capitalized once the project is likely and during the construction phase. Fees must be collected until the project is likely. Once the project is likely, directly identifiable costs must be capitalized on.
Companies often incur expenses associated with building a fixed asset or putting it into use. These expenses are allowed to be capitalized and included as part of the fixed asset cost base. The objective is to match the expenses with the income that the asset in question is supposed to help generate. For example, buying a factory to make widgets can generate revenue this year, but normally the goal is for this factory to continue to produce revenue for many more years, and a company generally doesn't “replace its factory” every year. Since the asset generates income for many years, the idea is that the expense of that asset is also spread over many years, or capitalized (in this case, depreciated).
On the other hand, payroll expenses that are clearly linked to the production of a specific asset should be allocated to that asset and capitalized accordingly. Another example, here, is advertising: advertising generates goodwill for both the current year and the likely future, but it is considered an operating expense due to its recurrent nature. Keep in mind that this exception is quite limited because most recurring expenses, by their very nature, don't create an asset, so they probably wouldn't be capitalized anyway. Some items that many people would naturally spend are surprisingly subject to capitalization. For example, the expense of acquiring a property is actually part of the property for tax purposes, as are the costs of disposing of an asset. For example, if you pay a commission to a broker to secure a long-term asset, the commission paid to that broker becomes part of the asset; you capitalize on that expense, rather than in the current year.
The exception here is, again, if you have a recurring commission agreement with that broker and the commission cannot be allocated to specific assets; such a recurring and non-assignable fee would generally be dispensable if the company purchases new assets on an ongoing basis and no part of the fee is contingent on the acquisition of specific assets. Most companies do not have such an agreement, so this exception is rarely invoked. Research and development costs under GAAP are generally spent. However, if these costs can be shown to have alternative uses in the future, then a company can capitalize on the cost. In this case, the company would capitalize on the cost as an asset and then depreciate it over the expected life.
It is important to note that personnel, indirect and contractual costs can never be capitalized on, regardless of whether or not there is an alternative use in the future. For example, inventory cannot be an equity asset since companies typically expect to sell their inventories within a year. Conversely, if a cost or purchase will last more than a year and continue to have economic value in the future, it is generally capitalized on. By capitalizing on business start-up costs some entrepreneurs can change their plans as to how perfect those plans need to be before launch. If a company borrows funds to build an asset such as real estate and incurs interest expenses it is allowed to capitalize on the cost of financing.
Of course after a few years of enjoying those benefits taxpayers became quite used to the ability to deduct certain large purchases immediately rather than capitalize on them and once taxpayers get used to such a benefit it becomes very difficult for Congress to withdraw those benefits so Section 179 remains a fairly large source of benefits for small businesses across America. Therefore if renovation cost is of nature of capital expenditures alone that renovation cost can be considered as “improvement cost” for home ownership. If contract is license company can capitalize on and subsequently amortize cost of licensing installation and testing with costs such as training and maintenance expenses as incurred. Each company's accounting department sets its dollar value threshold for what it considers an expense rather than a capitalizable cost. To capitalize on cost company must derive economic benefits from assets beyond current year and use elements in normal course of its operations. When company builds assets for its own use or for sale or lease as discrete projects GAAP requires any interest incurred in production of those assets be capitalized on balance sheet.
Legal fees related to active conduct of business or business activity may be deducted as ordinary and necessary business expenses. Again this gets very complicated but overly simplistic way of looking at it is if you “improve property” or extend useful life of important component of property this is capital expense. Projects such as construction of buildings included in fixed asset value building cost professional fees (architect engineering) permits other expenses necessary place asset in intended location terms use must be capitalized. The costs some specialized services such as hiring consultants or accountants also considered operating expenses.
