If you use a "Section 179" deduction
, you can expense all $20,000 in your first year of business and deduct that from your gross wages. However, in order to retain that deduction, you are generally expected to be able to generate a profit in three of every five years while in business.
If the IRS determines that you are not able to meet this test, you could be audited, and if the IRS further determines that you were not engaged in a bona fide business enterprise, but rather a hobby, or a tax shelter
. If this occurs, you could find that the IRS may dissallow the original deduction entirely, as well as deductions
from future years, to the extent that the deduction exceeds your income from that business.
The botXXXXX XXXXXne is that the Section 179 deduction is available. Just be certain that you are heavily invested in making this business a profitable enterprise, or you could find that Uncle Sam comes back and takes away the deduction.
Hope this helps.