What Start-Up Costs Can You Deduct?

200359336-001Starting a new business is an exciting prospect but there are many serious financial and tax implications that must be considered in order to be successful. Make sure you work with an Orange County, CPA firm that understands the needs of local businesses and can help a business that incorporates in California.

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.

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.

Whether you need individual or business tax advice, give us a call at 949-759-5626 to reach our Orange County CPA firm. We can assist local small businesses with their business accounting needs, and specialize in new businesses advisory. We’ve got the answers you’re looking for, so don’t wait. Call us today.

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