A Lowdown on Deducting Small Business Startup Costs

December 9, 2013 | By | Reply More

tax deductionsIf you are a motivated entrepreneur with a business plan that you believe is ready to take off like a rocket, you’ll likely have to dig deep into your pockets to cover the numerous business expenses that you’ll be responsible for throughout the startup process. The good news is that you may also be able to write off many of these expenses as a tax deduction to hang on to more of the money you earn.

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.

 

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Recommended Books on Tax Deductions for Small Businesses:

 

About the Author: 

Bert Seither is the Vice President at 1800Accountant, the nation’s leading accounting and consulting firm for small businesses. For over 10 years, Seither has assisted thousands of entrepreneurs to put their companies on a path to prosperity.
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Category: Startup Expenses, Tax Management

About the Author ()

Bert Seither is the Vice President at 1800Accountant, the nation’s leading accounting and consulting firm for small businesses. For over 10 years, Seither has assisted thousands of entrepreneurs to put their companies on a path to prosperity.

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