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The IRS offers some much-deserved tax relief for those who incur a certain amount of costs during the developmental stages of a company. Startup costs can be claimed as a deduction for certain expenses that are directly associated with launching an “active” business entity or trade, in the words of the IRS. They can be claimed as a write-off for the year in which they are paid. For instance, business expenses paid in 2013 must be claimed on a 2013 tax return when you file it in 2014. The other rule is that they must be expenses a small business owner has to pay before the first day on which the business becomes officially active. More specifically, up to $5,000 in startup costs are eligible to be deducted. This $5,000 limit must be reduced dollar-for-dollar by the amount of costs tied to starting a business that exceeds $50,000.
Since each small business can vary greatly based on their respective industries, there are numerous expenses that have to be accounted for in order to cover various items and services to get a company off the ground. Marketing costs intended to promote the grand opening of a small business would fall under the startup cost umbrella. Such ads or promotions could run on TV, in a local newspaper, or on social media sites like Facebook. Common startup costs include those spent on office supplies, computers, desks, and printer paper.
The basic rule with startup costs is that they have to be necessary expenses for things that are needed to get a small business rolling. Expenses incurred to train new employees may also be tax deductible. In most cases, there are always ongoing costs that must be covered throughout its entire existence, some of which are incurred monthly and some of which may be incurred less frequently.
However, startup costs are classified as expenses that are incurred and paid prior to the first transaction in the business. This distinction is important so that business owners know which expenses are put in which types of categories with regard to all business expenses. In general, startup costs usually don’t include taxes, deductible interest, and certain types of initial research.
With so many expenses in the mix that are necessary to launch a new company, taking advantage of the startup costs deduction and any other business deductions available is imperative. These IRS write-offs can help reduce your tax liability so that you keep more of the money you strive to earn through your company each and every year.
Disclaimer:
To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. If you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor. This message (including any attachments) contains confidential information intended for a specific individual and purpose, and is protected by law. If you are not the intended recipient, you should delete this message. Any disclosure, copying, or distribution of this message, or the taking of any action based on it, is strictly prohibited.
Recommended Books on Tax Deductions for Small Businesses:
- J.K. Lasser’s Small Business Taxes 2014: Your Complete Guide to a Better Bottom Line
- Deduct It!: Lower Your Small Business Taxes
- Small Business Taxes For Dummies (For Dummies (Business & Personal Finance))
- Small Business Taxes Made Easy, Second Edition
- 475 Tax Deductions for Businesses and Self-Employed Individuals: An A-to-Z Guide to Hundreds of Tax Write-Offs
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