Are you launching a new business venture? If so, you've probably spent money getting ready to open your doors. Normally, you're required to amortize these "startup" costs over a period of 180 months, starting with the month your business begins. That time period means you'll typically write off your initial expenditures in 15 years. However, under a special provision of the tax code, you can expense up to $5,000 of the costs in the year you begin business, with no waiting.
To benefit from the break this year, your business must be in operation before January 1, 2017. Depending on the type of business, if you open the doors to customers or allow online sales around the holidays, you'll most likely qualify.
What expenses are eligible for the immediate deduction? The general rule is that qualifying costs are investigatory or the kind you'd be able to deduct if the business was already operating. Examples of investigatory costs include an analysis or survey of potential markets, products, and labor supply. Qualifying costs that you incur before beginning operations include ads for your business opening, salaries and wages for employees who are being trained, and consultant fees.
Be aware that the $5,000 current deduction is reduced on a dollar-for-dollar basis when startup costs exceed $50,000. For example, suppose you sink $53,000 into a new venture that begins doing business before the end of the year. As a result, the current deduction is reduced to $2,000 ($5,000 - $3,000). The remaining startup expenses must be amortized under the usual rules. Be sure to track your startup costs so you can take maximum advantage of the current write-off.
Ong & Company is a professional accounting, tax, and advisory services firm. Our team of CPAs specialize in helping small businesses and individuals minimize tax expenses and maximize after-tax income. Headquartered in Corporate Woods in Overland Park, Kansas, we serve clients across the United States.