New business owners are often unaware that many expenses incurred by start-ups can’t be deducted right away. When opening a new business, remember these key points.

How start-up costs are handled on your tax return:
Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one. Organizational costs include the costs of creating a corporation or partnership.
Under the federal tax code, taxpayers can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs. The $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
No deductions or amortization write-offs are allowed until the year when “active conduct” of your new business commences. That usually means the year when the enterprise has all the pieces in place to begin earning revenue. To determine if a taxpayer meets this test, the IRS and courts will generally ask: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Has the activity actually begun?
Time may be of the essence if you have start-up expenses that you’d like to deduct this year. When deciding to deduct start-up costs, record keeping is important. Contact us about your business start-up plans. We can help with your tax planning, business development planning, and other small business needs.