When can someone start to take business deductions? If I am starting a sole propreitorship, and am in the market research phase of my business, can I begin to take business deductions? Do I need to file a DBA or incorporate before I could do so?
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Answers ( 1 )
Getting your business off the ground can be pricey. For many small businesses, costs can start piling up even before you are an official entity; costs like prospecting, market research, and interviewing prospective employees are just a few examples. Incurring costs ahead of launching your business means you are spending money before you can make money. Many startup costs are eligible for tax deductions and should be treated as capital expenditures. You can either deduct a limited amount of these capital expenditures on your tax return or amortize those costs over 180 months. That amortization period begins the month you start operating the business.
As you begin incurring startup expenses, you will want to develop a clear understanding of which are considered deductible and which are not. While your accountant can go through your itemized expenses and help you make that determination, you can consider a startup cost deductible if it meets two criteria:
1. The cost is one you pay or incur before the day your active business launches.
2. You could deduct the cost if you paid or incurred that cost while operating an existing business in the same field as the one you plan to enter.