Tax Deductions for Starting a Business

It can be expensive to start a new business.  Not just the costs for supplies, equipment, and a space to operate, but also costs for reserving your name, setting the structures and the costs for getting your name out.

The IRS knows this.  You get special deductions for Business Start-Up costs that are allowed even before you make any money.  (Not that making a profit is required to declare yourself a business.  If you are actively engaged in trying to make money, that’s often enough, if your expenses are within reason.)  Anything you need to start the business – except expensive or specialized equipment – is allowable.

Disclaimer: I am not a tax attorney. What I know is from reading IRS manuals and the books from tax professionals. This is a guide to show you what’s possible. Consult your tax professional for specifics.

What Can You Deduct?

The costs to do market research. Is this a viable business to go into? What are

However, you treat STARTUP costs slightly different.  There are two tests for startup costs:

  • It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into)
  • It is a cost you pay or incur before the day your active trade or business begins.

Start-up costs are amounts paid or incurred for (a) creating an active trade or business, or (b) investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and for the production of income in anticipation of the activity becoming an active trade or business.

Start-up costs include amounts paid for the following.

  • An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
  • Advertisements for the opening of the business.
  • Salaries and wages for employees who are being trained and their instructors.
  • Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
  • Salaries and fees for executives and consultants, or for similar professional services.

Check the IRS guides to see how laws have changed year to year, and what costs are ‘Qualified” to deduct.


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