If you investigate the possibility of creating or starting a business, you might be able to deduct your startup costs.
Startup costs include the cost of:
• Travel
• Marketing reports
• Legal and accounting services
• Engineering and architectural surveys
The deductibility of startup costs depends on two factors:
• Whether you’re currently in a business that is the same or similar to the type of business you’re thinking of starting or acquiring
• Whether you actually end up starting or acquiring the new business
Let’s say you’re in the restaurant business.
If you fly to Chicago to investigate the possibility of opening a restaurant there, the cost of your flight and any other startup costs are deductible whether or not you end up starting a restaurant in Chicago.
This is because you were thinking of expanding your current business (the restaurant business).
But let’s say you flew to Chicago to investigate the possibility of opening a dog kennel.
Because you’re currently in the restaurant business, the tax implications are different.
If you decide not to start a dog kennel, then your costs of flying to Chicago are not deductible.
But if you do start a dog kennel, then the cost of your flight and any other startup costs are deductible as follows:
• You can immediately deduct up to $5,000 of your startup costs (this is reduced dollar-for-dollar by the amount that your total startup costs exceed $50,000)
• Any startup costs not immediately deducted are expensed over 180 months, beginning with the month in which the business begins
Thus, if you start the dog kennel and incur $10,400 of startup costs, you can deduct $5,000 of startup costs and deduct the remaining $5,400 over 180 months (which would be $30/month).
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