Business Start up -- What is Deductible ?

By
Services for Real Estate Pros with Lisa D Church CPA, EA, MBA, NTPI Fellow

Launching a new business takes hard work -- and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

  • No deduction is available until the business becomes active.
  • Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
  • Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example: Gina spent $20,000 on start-up costs before her new business began on July 1, 2020. In the 2020 tax year, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2020 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for "organization expenses" -- such as legal and accounting fees for services related to forming a corporation or partnership -- are subject to similar rules.

 

 

My practice is in Severn, MD.

I specialize in the following services for both businesses and individuals:

Tax Services:

Tax Preparation & Tax Planning

Virtual Tax Preparation

Audit Protection

IRS Tax Problem Resolution

 

Accounting & Bookkeeping Services:

Outsourced Accounting and Bookkeeping

Payroll Services

Business Consulting

Outsourced CFO Services

QuickBooks Set up and Support Services

 

Who we serve:

We have special expertise in serving the following industries:

Small Business Owners

Real Estate Investors

Medical Practices

Attorneys & Law Firms

Individuals

 

Contact me for any help needed at:

Lisa D Church, CPA, EA, NTPI Fellow, MBA

7865 Clark Station Rd

Severn, MD 21144

email: lisa@waterfronttax.com

website: https://waterfronttax.com

call 877-727-6577 to talk to office support 24/7 to schedule appointments

Or Schedule a free consultation directly on my calendar at https://waterfronttax.setmore.com/

 

Comments (1)

Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Feb 07, 2021 04:26 AM