Fledgling businesses often do not see a profit for several years, if ever. Individuals who are seeking to start a business should conduct a full investigation into the costs and potential for profit before moving forward. It is highly advisable to consult with a Boston tax attorney to fully understand the tax issues involved in a start-up as well.
The cost of starting a company does not begin with taking out a business loan, or even paying license and filing fees. The first costs are those incurred as one investigates the viability of the business. A Boston tax attorney may assist in such an investigation and act as a consultant throughout the process.
The actual start-up costs will become an issue only if and when the individual begins the process of creating the business. It is important to note that costs related to both the investigation and actual start-up may be deductible. That being said, certain restrictions will apply.
Deducting Start-Up Costs
The costs of starting a business are capital expenditures. As such, the IRS considers them to be a part of your investment interest and thus can be amortized accordingly. How you decide to amortize the costs depends on a number of factors, for which you may want the guidance of a Boston tax attorney.
During the first year of your business’ operation, you are allowed to deduct up to $5,000 of the start-up costs. You are also allowed to take an additional $5,000 deduction for small business organization costs. This deduction, however, is not available to someone setting up a sole-proprietorship.
Each year thereafter, you may take additional deductions as the costs are amortized. For instance, you may take $5,000 per year for 8 more years, or take a lower deduction of, say, $3,000 per year. These deductions can help offset the lack of profitability you may experience during those first difficult years.
An alternative to amortizing your costs from the first year is to wait until your business begins to make a profit. Waiting to begin deducting in this way can help offset tax liability for profits. In fact, you may wait until you close the business to take the deduction, although this rarely occurs.
If you have tax questions about starting a business or need assistance with another matter, a Boston tax attorney at Ionson Law will be happy to meet with you. Call (781) 674-2562 to schedule an appointment today.