Lowering your tax bill, even when you’ve just started your own business, is possible with some foresight and a little insider help. You may be able to reduce your revenue on a dollar-to-dollar basis, or deduct certain expenses that you incurred when your business was at the very initial stages, but it’s important to note that the rules arenot always straightforward, and without guidance from a tax professional, you could miss out on big tax savings for your start-up.
Here are the specific allowable business start-up deductions that could help you reduce your tax bill, and a tax professional will be able to go through them in detail with you:
- Creating your business
There may be a number of costs associated with creating your business, such as feasibility studies, market research and travel expenses from traveling to view prospective sites.
- Launching the business
Getting your business up and running can incur costs from recruiting, hiring and training staff, advertising fees and so on. Note that purchases of equipment aren’t included, as they are depreciated under normal business deduction rules.
- Business organization costs
These can be incurred when you set up your business as a legal entity, such as a corporation or LLC. Organizational meetings, directors and accounting fees for example, would also be included.
If you created your business but it never became operational, any associated expenses will not qualify for a deduction.
Taking your business start-up deductions
There are limits that may apply when deducting certain start-up costs, and expenses incurred during the start-up phase have a cap of $5,000 in the first year. To get a full, well-rounded picture of what business expenses you can and can’t deduct in the first year, you’d be advised to seek advice from a tax professional.
How to claim the deduction on your tax forms
If you’re a sole proprietor, you’ll need to report your first-year deduction on your Schedule C business tax form, your K-1 for a partnership or S corporation, and Form 1120 of a corporate tax return. Your tax professional can help make sure every deduction is logged on time.
When can you claim the deduction?
While you can claim the business start-up deduction in the tax year your business first became active, if you predict making a loss for the first few years, you might want to consider amortizing the deductions to offset profits further on in your business’s life.
Business expenses are fairly straightforward to deduct, but the story isn’t quite the same for writing off business start-up expenses. Consulting with a tax professional who specializes in this type of taxation is the smart solution, and can help you maximize your money as your business gets underway.