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Are your start-up costs deductible?

Are your start-up costs deductible?

| November 03, 2017

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.


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