While the COVID-19 crisis has devastated many existing businesses, the pandemic has also created opportunities for entrepreneurs to launch new businesses. For example, some businesses are being launched online to provide products and services to people staying at home. Entrepreneurs often don’t know that many of the startup business expenses bring incurred is ineligible for deduction.
You should be aware that the way you handle some of your initial expenses can make a large difference in your tax bill.
If you’re planning or starting a new business, keep these key points in mind:
In general, start-up expenses include all amounts you spend to:
To be eligible for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example is money you spend analyzing potential markets for a new product or service.
To qualify as an “organization expense,” the expenditure must be related to creating 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.
If you have startup corporate expenses that you’d like to deduct this year, you need to decide whether to take the elections described above. Good business recordkeeping is critical. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.