It’s not unusual for new entrepreneurs to turn to us for help lowering their tax bills. There are many opportunities to get your startup off on the right footing by partnering with Whyte & Associates, Inc. Our team provides tailored tips and guidance for your business to minimize your tax burden and avoid overpaying or other unnecessary expenses at “tax time.” A little planning year-round and a true partnership with our professionals in Rancho Cucamonga, California, goes a long way to support the lasting financial health of your business.
In most cases, the answer to this question is “yes.” However, it is essential to have effective strategies in place and to properly plan to make the most of deductions.
Relevant/eligible expenses are seemingly endless. Consider the array of resources that went into starting your venture. The IRS has a narrow definition of costs that could be deducted. The agency defines these costs as incurred after a business plan is confirmed but before you make your first sale.
Perhaps you sought out the advice of a business coach when opening your store or café. Then, you enlisted the expertise of a consultant to craft a business plan. When the grand opening is underwhelming, you hire a PR/marketing firm to attract more customers. Per IRS guidelines, only the consultant fee is deductible as a startup cost for tax purposes. When the coach was enlisted, the business was just an idea. And when the PR firm was hired, you weren’t in the process of “starting up.” You were already in business.
These are largely defined as long-term assets (those vehicles and equipment that last at least 12 months), the price and costs associated with buying an existing business, filing and other fees when forming a corporation, and inventory.
These non-applicable expenses may be “written off” under other classifications; for instance, the long-term assets mentioned above are typically deductible as depreciation under Section 179. There are also separate deductions associated with fees for corporations, which are characterized as “organizational” and not “startup” expenses when forming an entity.
During the first year in operation, the startup deduction is capped at $5,000 for those ventures that have incurred $50,000 or less in eligible expenses. You cannot deduct startup costs if your expenses exceed $55,000. The deduction is also reduced if your expenses exceed $50,000 but are under $55,000. The decrease depends on the amount you go over the $50K threshold; for instance, if your costs were $51,500, then $1,500 is subtracted from the maximum $5,000 deduction. So, the total deduction in this case would be $3,500.
The rest can be amortized and is typically deducted equally over the initial 15 years of operations. You may also choose to capitalize on startup costs. We can help you make the best decision for yourself and your new business. Call Whyte & Associates, Inc. today at (909) 575-0080 to speak with one of our professionals in Rancho Cucamonga, CA.
