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Tax Tip - September 22nd,  2008

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What can you deduct when you start a business?

Has the slowing economy prompted you to turn your hobby into a business or launch an evenings-and-weekends venture? If so, the tax code offers an incentive: a current-year deduction for start-up and organizational costs.

Here's an overview.

  • Start-up costs include expenses you incur before your business begins operations, such as investigating whether the business is feasible, and pre-opening advertising. As a general rule, start-up costs are expenses that would be deductible if your business were already up and running. However, interest, taxes, and research costs are not start-up costs.
  • Organizational costs are expenditures you make while creating a corporation or organizing a partnership. Examples include state filing fees and professional services.
  • The maximum deduction for each type of expense (start-up and organizational) is $5,000. That amount is reduced when total combined costs exceed $50,000, but you can deduct the excess over 15 years.

    Thanks to rules issued this summer, you no longer have to file a separate, special election to write off these expenses. Instead, you claim the deduction on your initial business tax return.

Give us a call if you have questions about this or other deductions. We'll be happy to help you get your business off to the right start.

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