One common question asked when starting a new business is if money spent to start the endeavor can be deducted. A limited amount of start-up costs incurred or paid out after September 8, 2008, can be deducted. The remaining expenses that cannot be deducted can be recovered over a 180-month period beginning with the month the business becomes active.
Start up and qualifying costs are broad terms, but the IRS defines them as any expense incurred by starting or investigating the startup or receipt of a business. More specifically: amounts paid to analyze or survey possible markets, advertisements, salaries and wages paid out to train employees or for consultants, and travel with the intention of securing distributors, suppliers, or customers fall into this category. Non-qualifying costs that cannot be deducted are taxes, interest, and experimental expenses.
If you are looking into purchasing a business, startup costs that can be recovered are investigative costs when you are searching for or reviewing a business. You cannot amortize costs incurred to purchase the business.
These rules are worth keeping in mind if you are looking to either start a business or purchase an existing business and will help you maximize your deductions come tax season. It’s important to talk to a CPA before you pay out any investment in starting or purchasing a company, to find out what you will be able to deduct and what can be amortized over time before those funds are spent.
If you need a referral to someone we know and trust to discuss your specific situation, reach out to us at 310-534-5577 or [email protected].
