When starting a business, you need to plan for your initial costs and understand their taxation.
The following list includes typical amortizable start-up costs involved in starting a business.
- Pre-Opening Salaries and Wages – including instructors/trainees
- Prepaid Insurance Premiums – learn more at SCORE Business Brief 09.00
- Legal and Accounting Fees
- Rent Deposits
- Utility Deposits
- Advertising and Promotions – brochures, business cards, flyers, newspaper ads, etc.
- Licenses – permits – inspections – learn more at SCORE Business Brief 10.03
- Market Surveys – to identify number and location of potential customers or distributors
- Site Surveys – to locate a place of business
- Supplier/Labor Market Analysis – to assess cost and supply of local suppliers/workers
- Travel & Living Expenses: to secure suppliers, distributors or customers.
Note: Start-up costs do not include product/service research and development, interest on loans, or taxes
To be amortizable, a start-up cost must be a cost that would be deductible if it were paid to operate an existing business (in the same field as the one you entered into), and it must be paid or incurred before the day your active trade or business begins
Start-up costs of up to $5,000 are deductible as “other expense” in the first year of operation, while the balance of those costs are deductible over the next 15 years. If the first year’s costs exceed $50,000, that year’s deduction is reduced.
Organization costs up to $5,000, such as the legal fees and state registration fees required to set- up an LLC, partnership, or corporation, are deductible in the same manner as start-up costs.
Capital expenditures for vehicles, leasehold improvements, equipment, and buildings must be depreciated for tax purposes over their useful life (see IRS Pub. #946). However, under Section 179, certain expenditures (up to $500,000 in 2015) may be written off in the year incurred (Pub. #946, Page 19). There are several exceptions and limitations to this general rule, so you should discuss this option with your accountant.
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