Despite the COVID-19 pandemic, government officials are seeing a large increase in individuals starting new businesses. From June 2020 through June 2021, the U.S. Census Bureau reports that business applications are up 18.6%. The Bureau measures this by the number of businesses applying for an Employer Identification Number.
Entrepreneurs often don’t know that many of the startup business expenses can’t be currently deducted. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.
If you’re starting or planning to launch a new business, keep these three rules in mind:
In general, start-up corporate expenses are those you make to:
To qualify for the election, an expense also must be one that would be deductible if it incurs after starting a business. One example is money you spend analyzing potential markets for a new product or service.
To be eligible as an “organization expense,” an expense must be related to establishing a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing a new business and filing fees paid to the state of incorporation.
Are starting a new business and have expenses that you’d like to deduct on your tax returns this year? If you answered yes, you need to decide whether to take the election described above. Record-keeping is critical. Contact us about your start-up plans. Our accounting firm can help with the tax and other aspects of your new business.