Launching a business can be costly. Luckily, the IRS allows startups to deduct up to $5,000 of startup and organizational expenses during their first year of operation as tax deductible expenses.
To gain more clarity into what constitutes startup costs and organizational expenses, consult a tax professional. It’s also recommended to keep an expense log of all your expenses throughout.
1. Legal and Accounting Fees
As part of your startup expenses, hiring an accountant or attorney might become necessary for various reasons. According to IRS rules, these costs qualify as startup expenses up to $50,000; for amounts exceeding this threshold, amortization must take place instead.
An accountant or tax professional can assist in identifying what expenses qualify as startup costs, such as incorporation or filing paperwork for licenses and permits from government bodies. Furthermore, this person can assist in claiming other one-off expenses that qualify as startup expenses.
Tax professionals can also advise you on the distinctions between startup and organizational costs, with startup expenses eligible for immediate deduction while organizational expenses must be amortized over 180 months.
2. Advertising
Advertising and marketing expenses may be tax deductible; however, you should always seek the advice of a tax professional prior to claiming this expense. Advertising costs qualify as general startup or organizational costs which you can deduct in the year that your business opens its doors, with additional amortizable costs spread over multiple years.
Be wary not to exceed this amount when filing taxes the first year you open your doors; consult a tax professional who specializes in small business to ensure all legitimate write-offs and filing correctly are taken advantage of – this can save significant headaches later when filing.
3. Office Supplies
No matter where your workspace may be – leasing office space, working from home or both – any expenses related to it are tax deductible. That means anything from paper and notebooks, stationery to mugs and water bottles used throughout the day for work purposes are all eligible as expenses related to your workspace. Even monthly telecommunication fees or utilities used solely for business are tax deductible expenses.
Accurate records are key when it comes to claiming expenses on your tax returns, which is why Bench, America’s premier bookkeeping service, tracks all eligible expenses to ensure you don’t miss a tax break. Our team imports every transaction from banks, credit cards and merchant processors and categorizes and reviews them for hidden tax deductions – keeping your books clean and ready for filing! Start your free trial today to discover just how much Bench can help save.
4. Insurance
IRS allows most startups to claim up to $5,000 each in start-up and organizational costs during their first year in business; anything exceeding these limits must be amortized over several years.
What constitutes startup expenses? According to the IRS, startup expenses include expenses related to initiating or researching an active trade or business venture – this may include costs such as research and marketing expenses.
Equipment purchased to get your business underway won’t count towards startup expenses; however, once in service it may qualify for tax deductions. Your tax professional can assist in this regard as well as provide guidance as to what constitutes startup expenses.
5. Equipment
The IRS typically considers any funds spent preparing to open your business startup expenses. These costs are similar to regular business write-offs except they occur before it actually opens for business.
The IRS allows you to claim up to $5,000 of startup and organizational expenses within the first year, with any excess expenses amortized over 180 months.
If you need assistance understanding which costs of running your small business are deductible, consult a tax professional who specializes in small businesses to avoid costly errors at tax time. Bonsai’s receipt-keeper app scans bank or credit card statements for potential write-offs that it automatically records; give it a try now – for free!
