The National Directory of Certified Public Accountants

Ask A CPA - Small Business Services

Are The Costs Of Starting My Business Fully Deductible?

Generally, the preliminary costs of investigating and setting up a business are amortized over a 60-month period. Startup expenses are things associated with setting up your business or investigating the purchase of an existing business. Among the items that count as startup expenses: Doing an analysis of your potential market(s) , Paying for consultants , Buying initial supplies , Advertising your new business , Paying employees before the business opens . Among the expenses that can qualify as an organizational cost: State incorporation fees , Lawyers' charges for drafting incorporation papers , Initial accounting fees . For 2011 ONLY, You could have writen off up to $5,000 in business startup costs and another $5,000 in organizational expenses in the year that you start a business. (Note: These deductions are reduced if you have more than $50,000 of either type of expense.) Once you've written off that first $5,000, you can still get a tax benefit from other expenses. However, those startup costs will have to be written off, or amortized, over 15 years. Depreciate your initial equipment and furniture - the assets you buy for your startup can be written off. However, unlike supplies and other expenses, assets have to be depreciated. There are different rules for different assets. Get a tax benefit for merchandise you first bought for yourself - If you've never used these items for business before, you could depreciate them, based on their value when you started using them in your business. Most office equipment, could be written off over seven years; computers can be deducted over a five-year period. Whether it makes sense to take as many deductions of business startup costs as you can in the year you start a business depends on individual circumstances. In some cases, owners of startups may prefer to stretch out deductions over several years so that they balance out more evenly against eventual revenue streams. A tax pro can advise you on the best expense- and tax-planning strategies for your own startup venture.

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