Expenses that meet the following two requirements are considered "start-up" expenses:
1) Paid or incurred in connection with:
2) It must be a cost that would have been allowable as a deduction if it were paid or incurred in connection with an existing active business in the same field as that entered by the taxpayer.
Note that interest expenses, taxes, and research and development costs are not considered start-up expenses.
Generally, start-up expenses paid or incurred are not currently deductible and must be capitalized. The taxpayer may elect to amortize these expenditures over a period not less than 60 months starting with the month in which the business begins.
For start-up expenses paid or incurred after October 22, 2004, the taxpayer may elect to currently deduct start-up expenses up to $5,000. This amount is reduced (but not below zero) by the amount of start-up expenses that exceed $50,000. Any remaining start-up expenses after the current deduction election will be capitalized and amortized over a 180-month period.
Maybe. The taxpayer may be able to deduct investigatory expenses even though he or she later decides not to engage in the business if sufficient amount of time and expenses is incurred in preparation to starting the business. However, the deductibility of these expenses varies by the facts and circumstances of the taxpayer.
If you are starting a new business, you should definitely consider contacting an experienced business lawyer. Your lawyer will help you understand the start-up process and can assist you with any tax issues related to new business expenditures.
Last Modified: 07-17-2014 04:31 PM PDTLaw Library Disclaimer
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