Tax Tip Tuesday: Starting a Business

Once you’ve taken the leap of faith to start a business, understanding the financial complexities is a whole new reality. 

Business startup expenses can be costly, but the good news is that you can use most of these costs to reduce your business taxes.  Some startup costs can be deducted in your first year of business, while most must be spread out over several years.

For business startup expenses to be deductible, the expenses incurred must be for creating an active trade or business, or for investigating the creation or buying of an active trade or business. 

The money you spend doing market research, figuring out your product, looking for an office space, advertising your business launch, and doing anything else to investigate, launch or buy a business are generally deductible. 

Other eligible business start-up costs include:

  • Customer surveys
  • Market research expenses (publications, consulting, etc.)
  • Product research
  • Site selection costs
  • Advertising
  • Wages and salaries for training
  • Professional and consultant fees
  • Costs associated with acquiring an existing business
  • Costs of leasing a commercial property
  • Equipment costs

Then there are organizational costs which is what is involved in the actual formation of a corporation, partnership or LLC. Typical qualifying organizational costs include:

  • Incorporation fees
  • Partnership filing fees
  • Legal fees
  • Accounting fees
  • The cost of organizational meetings

The first year of being in business provides for a great tax savings opportunity.  That is because up to $5000 in normal operating expenses can be written off as startup expenses.  As long as you earn $5000 in income that first year, that will be a net zero income, equating to no tax being incurred.

Depending on the type of business you have, you may also incur capital expenses.  These types of expenses are very different from startup; however, they may also be incurred before the first dollar is earned. 

This would be for such things as vehicles, computers, equipment, and other purchases necessary for business.  The difference with these types of purchases is that they are recognized as depreciable assets.  Depreciation on such assets, however, does not begin until you open your doors for business and the number of years an item is depreciated varies based on the asset.

Of course, this is just the tip of the iceberg when it comes to owning and operating your own business.  If you find your time to be better spent operating your business as opposed to figuring out the financial side of your business, then give us a call.  We offer a free 30 minute discovery consult.  If you would like more information, simply call 301-714-2071 or visit www.SaundersTax.com.  Then you and your business can experience a Less Taxing Life and More Prosperous Solutions. 

Comments

Richard Lee Kissel obituary 1944~2023

Mr. Kissel retired from US Department of Commerce, National Institutes of Science & Technology (NIST) after 31 years of service with the Federal Government.

Mabel V Mooney obituary 1926~2023

Mabel was a homemaker throughout her life. In her free time she enjoyed bowling (in younger years), watching game shows, and playing cards.