Final answer:
The cost of investigating a business in the same field is deductible only if the taxpayer acquires the business. This rule is in place to prevent taxpayers from deducting expenses related to investigating potential acquisitions without actually acquiring them.
Step-by-step explanation:
According to the tax laws, the cost of investigating a business in the same field is deductible only if the taxpayer acquires the business. This means that if a taxpayer is engaged in a trade or business and conducts a thorough investigation of another business in the same field, the expenses incurred during this investigation can be deducted from the taxpayer's taxable income only if they actually end up purchasing that business. The purpose of this rule is to prevent taxpayers from deducting expenses related to investigating potential business acquisitions without any intention of actually acquiring them.
For example, if a taxpayer owns a grocery store and wants to investigate the possibility of acquiring a nearby grocery store, they can deduct the expenses associated with the investigation as long as they eventually acquire the other store. However, if they decide not to purchase the store after conducting the investigation, they cannot deduct the investigation expenses.
It is important for taxpayers to keep proper documentation of the investigation expenses, such as receipts and records, in order to support their deduction claims.