Before you start dreaming of deducting every cup of coffee you drink, office chair you purchase, or ad you run in the local paper, you should have a firm understanding of what qualifies as a deduction.
A couple things to keep in mind as your sort through your start-up and operational costs:
- You cannot deduct any start-up costs unless you are operational. In other words, your business needs to be functioning before you can claim any deductions.
- Always keep proof of your expenses. If you plan on deducting, you will need to have thorough records of your transactions (statements, invoices, receipts, etc.)
- Not all expenses are considered start-up expenses. Charges must be incurred during the planning and development phase to be considered part of your start-up expenses.
The IRS defines start-up costs as deductible capital expenses that are used to pay for:
1) The cost of investigating the creation or acquisition of an active trade or business: surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures.
2) The cost of getting a business ready to operate: employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers.
- It’s important to consider your total start-up costs. The IRS allows you to deduct$5,000 in business startup costs and $5,000 in organizational costs, but only if your total startup costs are $50,000 or less. If your startup costs for either area exceed $50,000, the amount of your allowable deduction will be reduced by that dollar amount.
If you still have questions, it’s a good idea so schedule a meeting with your trusted Certified Public Accountant. Your CPA can guide you through identifying start-up expenses and deductions as you get your new business off the ground.
Disclaimer: The McHugh CPA Group blog is intended for educational purposes. Subjects include technology, general business, and accounting and related topics. This blog is not intended to provide any advice. By using this blog site, you understand that there is no CPA/client relationship between you and the Blog/Web Site publisher. The Blog/Web Site, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for competent counsel from a qualified advisor in your state.