Entrepreneurs: What can you deduct and when?

This article organizes the original guidance on entrepreneurs: what can you deduct and when? into clear sections for easier reading and reference.

Overview

This opening section presents the main context from the original post.

Starting a new business is an exciting time. But before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away.

How expenses are handled on your tax return

This section keeps the original guidance focused on how expenses are handled on your tax return.

When planning a new enterprise, remember these key points:

• 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 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?

An important decision

This section keeps the original guidance focused on an important decision.

Time may be of the essence if you have start-up expenses that you’d like to deduct this year. You need to decide whether to take the elections described above. Recordkeeping is important. Contact us about your plans—we can help with the tax and other aspects of your new venture.

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Business Strategy & Growth
• Mergers & Acquisitions
• Meet The Team
• Harvard Business Review
• Accounting Today

FAQ

The questions below summarize the main points already covered in the article.

What is the main focus of Entrepreneurs: What can you deduct and when??

The article focuses on entrepreneurs: what can you deduct and when? and organizes the original guidance into sections for easier review.

What topics does the article cover first?

The article begins with how expenses are handled on your tax return and then continues through the remaining points in the original post.

Which additional areas are included?

Additional sections include an important decision.

Does the post include action items or reminders?

Yes. The original post includes listed items that have been kept in list format for easier scanning.

Was the original post wording changed?

The revision keeps the author wording and updates the structure so the post is easier to read online.