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Individuals thinking about starting a new business should be aware of IRS limitations on deductions for start-up expenses.

Unlike normal business expenses, costs incurred to investigate the creation of a business, or the costs to create a business, cannot be deducted immediately. Instead, taxpayers are limited to deducting only up to $5,000 of these start-up expenses in the year business activity begins, with any remaining expenses amortized and deducted over the next fifteen years.

Start-up costs include consulting fees, advertisements, and payments to employees. They don’t include interest, taxes, research and experimentation, and do not include costs to acquire a business.

The IRS has not defined when a business is deemed to begin, but it is generally considered to be when the business first starts the activities for which it was formed.

For example, if a person was starting a new consulting business, the costs to form an entity, make business cards, take out advertisements, and hire a secretary would not be deductible until the consultant got their first client, and even then only up to $5,000 of these expenses could be written off.

If you are considering starting a business, it’s important to keep track of all your start-up expenses and the date business activities begin, and to supply your accountant with this information.


If you are interested in starting a new business would like to speak with someone in our office regarding the content in this article, please contact us at 502-753-0609 and we will be happy to assist you. The statements contained herein are not intended to constitute written tax advice within the meaning of IRS Circular 230 §10.37. These statements are solely intended to communicate general information for discussion purposes and should not be interpreted as written tax advice nor should they be relied on as such.

Sources: Code Sec. 195