Tax Deductions for Start-Ups

There are many deductions startups CAN deduct, but there are restrictions on HOW they are deducted.   As an entrepreneur, you may be assuming some deductions are immediate when they are not. However, if your business is in operation today, you don’t want to miss these elections. Check out how start-up expenses are handled on your tax return and be sure to keep the records necessary to claim them.

Deducting Expenses Related to Start-Up

When getting your business up and going, you will have two types of expenses: start-up costs and operational costs. Here’s what qualifies:

  • Start-up costs include those you incurred or paid out while creating the business.
  • Deductions related to start-up can also include the costs you incurred while researching the creation or acquisition of a business.
  • The costs of creating a corporation or partnership, which are part of your operational costs, are also deductible.

How Much Can You Deduct

Federal law allows for a deduction of $5,000 for both start-up and operational costs. If your expenses exceed $50,000, the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Anything remaining has to be amortized over the course of 180 months on a straight line basis.

No Deduction Until Your Business Commences

The IRS calls is “active conduct,” which means the year when your business starts—when you have all the pieces in place to begin making money. And amortization write-offs and deductions are not allowed before then. To determine if you meet this criterion, consider asking the same questions the IRS will:

  • Did you undertake activity intending to earn a profit?
  • Were you regularly and actively involved?
  • Has the activity actually begun?

Don’t Miss the Tax Benefits of Starting a Business. Creating a business can be an exciting, yet anxious time. Contact PBMares today for help establishing your business plan and an understanding of how deductions may be able to improve your bottom line.