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I have a small business tax question. In 2017 I began

I have a small...

I have a small business tax question.

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

In 2017 I began planning for my business and spent about 7,000 leading up to getting registering my business in December 2017. Do I file my expenses for 2017 or in 2018? All were organizational costs, no income yet in 2017.

Accountant's Assistant: Is there anything else the Accountant should be aware of?

I don't think so.

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Answered in 7 minutes by:
3/23/2018
Tax.appeal.168
Tax.appeal.168, Tax Accountant
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Hello. Thank you for choosing this Q&A service for assistance. My name is***** will be assisting you. I am prepping my response, which I will provide to you in the next thread.

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In brief, you can deduct $5,000 of the start up costs in 2017. Start Up and organizational costs can be deducted up to $5,000 the year that the expenses are incurred. Any amount that exceeds the $5,000 has to be capitalized over a period of 180 months. SEE BELOW:

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Fortunately, there is a way around this dilemma. If your startup expenditures actually result in an up-and-running business, you can:

  • deduct a portion of the costs in the first year and
  • amortize the remaining costs (that is, deduct them in equal installments) over a period of 180 months, beginning with the month in which your business opens.

How much can you deduct in the first year? You are able to deduct up to $5,000 of your qualifying start-up costs, although the first-year deduction starts to phase-out when your expenses reach $50,000.

If your start-up efforts end in the creation of an active trade or business, then on your tax return for the year the business commences, the amount of expenses that you can deduct will be the lesser of:

  1. your actual expenses with respect to the new business; or
  2. $5,000, reduced by the amount by which the start-up expenditures with respect to the active trade or business exceed $50,000.

The remainder of your start-up expenditures is deducted ratably over the 180-month period beginning with the month in which the active trade or business begins.

REFERENCE SOURCE:

https://www.bizfilings.com/toolkit/research-topics/managing-your-taxes/federal-taxes/startup-costs-and-organizational-expenses-are-deducted-over-180-months

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As you had no income, you can amortize the entire amount over the 180 month period starting in 2018.

Tax.appeal.168
Tax.appeal.168, Tax Accountant
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Customer reply replied 1 month ago
even if those costs included travel and expo expenses for research and buying a 5,000 piece of equipment?

Thank you for the positive rating. I do appreciate it.

Sorry for the delayed response. I was away from the computer. Based on the following information, the expenses that you mentioned do not qualify for the amortization. You will need to deduct those expenses under 2017, which, since you had no income, is going to generate a NOL for you, which carries over to future years.

SEE BELOW:

What costs qualify? Investigation expenses that qualify include those relating both to business conditions generally, and those relating to a specific business, such as market or product research to determine the feasibility of starting a certain type of business. The costs of checking out the various factors involved in site selection would also be an amortizable investigation expense.In addition, the costs of creating a business include advertising, wages and salaries, professional and consultant fees,

What costs don't qualify? The following costs don't qualify for the first year deduction and 180-month amortization:

  • Incorporation expenses can not be deducted as startup costs. However, they may be deductible as incorporation expenses.
  • Startup expenditures for interest, real estate taxes, and research and experimental costs that are otherwise allowed as deductions do not qualify for amortization. These costs may be deducted when incurred.
  • The costs attributable to the acquisition of a specific property that is subject to depreciation or cost recovery do not qualify for amortization. Instead, the property should be depreciated under the appropriate rules.
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