Resources

Articles & Tips

Tax Tidbit 5/07: Deducting Business Start-up and Expansion Expenses

When you start a new business, some of your start up or expansion business expenses can be immediately deductible from your taxes.  Taxpayers starting a new business may incur expenses that are currently deductible or eligible for a 180-month amortization election.

There are three types of start-up expenditures that qualify for the amortization election: 

1. Investigative costs associated with the creation or acquisition of an active trade or business;
2. Start-up costs incurred after a decision to establish a particular business is made but before the business begins; and
3. Pre-opening costs of the business that are related to any activity engaged in for profit and for the production of income before the day the active trade or business begins in anticipation of becoming an active trade or business.

However, if your total start-up expenditures are under $50,000, you can immediately deduct up to $5,000 of costs upon starting the business.  If your total start-up expenditures are over $50,000, the $5,000 figure is reduced dollar-for-dollar.  For all start-up expenditures not eligible for immediate deduction, an election is available to amortize business “start-up” expenses over a period of 180 months, beginning with the month in which the active trade or business begins.  Start-up expenses for which an election to amortize is not made must be capitalized and cannot be deducted.

If you have any questions regarding the tax treatment of business start-up costs, please contact Andy Ross at 908-782-7900, ext. 113.