Deducting Startup Expenses
A common question small business people have is whether expenses to set up the business are deductible. First, it is important to note that you must have actually started the business before you can take these deductions. Your first tax return after the start of your business can then include these startup deductions:
- Startup Operating Expenses
You can deduct expenses to start your business, including phone service, security deposits on your office or retail space, rental of moving equipment, and repairs to your new office.
- Startup Advertising
Any advertising you do to notify the public and potential customers of your new business can be deducted.
- Investigation Costs
You can deduct expenses for finding a location and an office, costs of traveling to investigate potential locations, and market research.
- Fees to Professionals
Fees you have paid to an attorney, CPA, insurance agent, or real estate agent to assist you during startup are deductible.
- Business Plan Preparation
Costs of purchasing business plan preparation software, books to help you prepare your business plan, and printing, binding, and mailing costs to send your business plan to potential lenders and investors are deductible.
The IRS has special rules for pre-opening inventory, for research and development costs, and for purchase of long-term assets at startup. If you buy an existing business, your investment and startup costs may also be treated differently. Check with your CPA or tax professional for more information.
