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Get ready for tax season by deducting startup costs
Laying the foundation for a brand new business enterprise and then formally registering it are two costly ventures. However, don’t fret because there are some savings opportunities. The IRS allows entrepreneurs to write off certain business expenses they incur during the startup phase of putting a small business on the map.
Some much-deserved IRS tax relief is available to small business owners who spend money throughout the early days of a new startup company. According to IRS guidelines, business startup costs can be claimed as a tax deduction on your return for specific costs that are tied to putting up an “active” business entity or trade. These expenses can typically be claimed on your return for the tax year in which you incurred them. So, if you incurred startup costs in 2014, you can deduct them when filing with Uncle Sam in 2015. Another condition that must be met is that startup costs have to be those paid out prior to a company becoming officially active. In terms of dollars and cents, a maximum of $5,000 in startup costs can be written off. This $5,000 limit has to be reduced dollar-for-dollar by the amount of costs associated with starting a business that exceeds $50,000.
Examples of deductions you may be able to take
As all small businesses out there vary greatly depending on their respective operations and industries, there are countless costs you must cover to achieve startup success. This includes paying for both goods and services you need to effectively conduct your trade. One example is advertising costs you spend to spread the word about your new enterprise. Perhaps you will run commercials on television or the radio, buy Google AdWords, or purchase ads on social media sites like Facebook, Twitter, and LinkedIn. Other expenses that fall under the category of startup costs include office supplies, equipment, laptops, desks, or even copy paper. Expenses you incur to train new employees in your business may also qualify for a tax write-off. In basic terms, startup costs must be necessary expenses for anything needed to get a small business off the ground.
Of course, initial startup costs are not the only expenses tied to small business ownership. There are obviously countless items and services you’ll have to invest in on an ongoing basis to keep your operation up and running. But remember that startup costs are categorized as costs paid before the first transaction made within a business. It’s essential to understand this difference so that business owners are fully aware of which expenses are classified as startup costs – and which ones are considered general business expenses. In most cases, startup costs do not include taxes, deductible interest, and certain aspects involved in initial research for a new business.
Because the list of expenses in a new startup venture is so lengthy, you should always take full advantage of any IRS tax deductions you can claim to reduce your tax liability and keep more of your hard-earned money in your business bank account. Startup costs are just one of these deductions. Others include the home office deduction, the vehicle deduction, the meals and entertainment deduction, and the write-off for medical expenses.