According to the IRS, when starting a new small business, certain tax deductions will be available to cover initial startup costs. In general, business expenses are investments used to make more money for your business. You can deduct the following business start-up costs from your taxes:
What doesn’t count as a business expense? Knowing what you can deduct as a business expense is just as important as knowing what you cannot deduct. Once you can tell the difference between what counts and what doesn’t count as business expenses, you can file your taxes accurately.
Business expenses you incur directly related to your business, such as supplies used in your business or hobby, are generally deductible. Some business operating expenses are not included in business expenses. They are usually not deductible.
Make sure you don’t duplicate your business tax deductions. For example, if you include an expense in your cost of goods sold as a deduction, you cannot deduct it as a business expense. On the other hand, you can divide your deductions between expenses used for both your personal and business use. You can deduct business expenses according to the percentage they are used for your business.
Remember, you can consult a business tax professional for more detailed information about IRS regulations or advice on how to choose your deductions.
Limit on deductions for start-up expenses
The costs associated with starting a business are often considered capital expenses, but you can deduct them up to a certain amount.
The IRS allows you to deduct $5,000 in business start-up costs and $5,000 in organizational expenses during the first year of your startup. If your total business expenses exceed $50,000, your deduction will be reduced by the excess.3
Additionally, if total business expenses for your startup exceed $55,000 in the first year, you will not qualify for the deduction. Instead, your initial costs can be amortized (repaid over a period of time).