• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Submissions
  • About Us
  • Contact Us
  • Jun 1, 2023
  • Startup
    • Creating a Plan
    • Funding a Startup
    • Franchise Center
    • Getting Your Office Ready
    • Making Your Business Official
    • Marketing Your New Business
    • Personal Readiness
  • Run & Grow
    • Customer Service
    • Human Resources
    • Innovation
    • Legal
    • Operations
    • Risk Management
  • Leadership
    • Best Practices
    • Communication
    • Green Initiatives
    • Open Culture
    • Strategic Planning
    • People Skills
  • Sales & Marketing
    • Advertising and Lead Generation
    • Marketing Innovations
    • Marketing Plans
    • Online Marketing
    • Relationships
    • Sales Activities
  • Finance
    • Budgeting and Personal Finance
    • Payments and Collections
    • Tax and Accounting
    • Pricing Strategy
    • Working with Investors
    • Working with Lenders
  • Tech
    • eCommerce
    • Hardware
    • Software
    • Security
    • Tech Reviews
    • Telecom
  • Shop

SmallBizClub

Helping You Succeed

taxbandits banner
Home / Finance / Tax and Accounting / Writing Off Your Startup Expenses
Writing Off Your Startup Expenses

Writing Off Your Startup Expenses

2650 Views

May 11, 2015 By TaxConnections

Business owners—especially those operating small businesses—may be helped by a tax law allowing them to deduct up to $5,000 of the startup expenses in the first year of the business’s operation. This is in lieu of amortizing the expenses over 180 months (15 years).

 
Generally, startup expenses include all expenses incurred to investigate the formation or acquisition of a business or to engage in a for-profit activity in anticipation of that activity becoming an active business. To be eligible for the election, an expense must also be one that would be deductible if it were incurred after the business actually began. An example of a startup expense is the cost of analyzing the potential market for a new product.
 
Related Article: How Can I Reduce the Startup Costs of My Small Business
 
As with most tax benefits, there is always a catch. Congress put a cap on the amount of startup expenses that can be claimed as a deduction under this special election. Here’s how to determine the deduction: If the expenses are $50,000 or less, you can elect to deduct up to $5,000 in the first year, plus you can amortize the balance over 180 months. If the expenses are more than $50,000, then the $5,000 first-year write-off is reduced dollar-for-dollar for every dollar in start-up expenses that exceed $50,000. For example, if start-up costs were $54,000, the first-year write-off would be limited to $1,000 ($5,000 – ($54,000 – $50,000)).
 
The election to deduct startup costs is made by claiming the deduction on the return for the year in which the active trade or business begins, and the return must be filed by the extended due date.
 
Qualifying Start-Up Costs – A qualifying start-up cost is one that would be deductible if it were paid or incurred to operate an existing active business in the same field as the new business and the cost is paid or incurred before the day the active trade or business begins. Not includible are taxes, interest, and research and experimental costs. Examples of qualified startup costs include:
 
  • Surveys/analyses of potential markets, labor supply, products, transportation facilities, etc.;
  • Wages paid to employees and their instructors while they are being trained;
  • Advertisements related to opening the business;
  • Fees and salaries paid to consultants or others for professional services; and
  • Travel and other related costs to secure prospective customers, distributors, and suppliers.
 
For the purchase of an active trade or business, only investigative costs incurred while conducting a general search for or preliminary investigation of the business (i.e., costs that help the taxpayer decide whether to purchase a new business and which one to purchase) are qualified startup costs. Costs incurred attempting to buy a specific business are capital expenses that aren’t treated as startup costs.
 
Original Post By: Barry Fowler, published via TaxConnections
 
Author: Barry Fowler is licensed to represent taxpayers before the Internal Revenue Service (IRS) and is a longstanding member of several tax industry professional organizations including the National Association of Enrolled Agents (NAEA), National Association of Tax Preparers (NATP), Texas Society of Enrolled Agents (TSEA), and the American Society of Tax Problem Solvers (ASTPS). With experience in the tax and finance industry spanning over twenty years, Fowler’s expertise includes tax resolution, personal financial planning, tax return preparation, financial statements, and general ledger bookkeeping. He has been instrumental in helping hundreds of people resolve complex tax issues with the IRS.

Filed Under: Tax and Accounting Tagged With: Deductions, Getting Started, TaxConnections

TaxConnections

TaxConnections

TaxConnections Worldwide Directory of Tax Professionals is an authority site of tax advisors from around the world. As the leaders in our market vertical, you can find and interact with tax professionals in corporations, law firms, public accounting firms, tax services firms, government and academia in one click. Through our innovative technology, we maximize the exposure of a tax professional’s expertise and services to the more than one billion people who go online for tax advice each year.

Related Posts

  • 6 Essential Things to Consider When Starting a Hot Sauce Business
  • 4 Things to Know About the Self-Employment Health Insurance Deduction
  • Here’s What You Need to Know About the Home Office Deduction

Primary Sidebar

bottom line ad

Random

15 Reasons No One Cares About Your Small Business Right Now

May 31, 2023 By Jeremy Bowler

4 Things to Keep In Mind When Choosing Your Next Vehicle

May 30, 2023 By Becky Wilson

How to Compare Guaranteed Investment Certificates

May 30, 2023 By Paul Williams Short

Why Is It Important To Tell A Story In Your Marketing?

May 26, 2023 By Dan Alvin

The Power of Collaboration: Why It’s Essential for Small Businesses

May 25, 2023 By SmallBizClub

Footer

About Us

Small Biz Club is the premier destination for small business owners and entrepreneurs. To succeed in business, you have to constantly learn about new things, evaluate what you’re doing, and look for ways to improve—that’s what we’re here to help you do.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Copyright © 2023 by Tarkenton Institute, Inc. All Rights Reserved | Terms | Privacy