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Tax Planning Tips for Startup Business Owners


June 3, 2022

If there is any united “American Dream”, it would have to be to own your own business, be your own boss, make your own rules. But even business owners have to follow some rules, namely ones dictated by the Internal Revenue Service (IRS). As a startup business owner, you are setting the pace for achieving your American dream. Just be sure you know the small business tax planning and preparation insight necessary to solidify long-term success.

Continue reading to learn some helpful tax planning tips for startup businesses, plus who to trust in Central Indiana for superior small business accounting advice and assistance.

Startup Business Taxes

Starting your own business comes with a lot of responsibility, and even more associated expenses. Most startup business owners must invest in themselves, which can cost a lot of money in the beginning of the inauguration process. Fortunately, the IRS does provide certain tax benefits and reliefs for startup businesses. As a startup business owner, you can use these benefits to help you achieve long-term and lasting success in a more streamlined and effectual fashion. But first, there are a few things about startup business taxes you need to know.

You Can Deduct Most Startup Expenses

The IRS allows small business owners to deduct their startup costs. From market research and cost foreseeability analysis to employee training, legal fees, even office location hunting, most startup business costs are treated as capital costs, and therefore, deductible. Startup businesses may be permitted to deduct expenses for advertising and marketing, or to organize a corporation or partnership.

Why are these expenses allowed to be deducted? Well, the IRS sees them as long-term assets that will assist your company in making more money down the road. These assets cannot be deducted the year they are purchased; they must be depreciated over a period of time. Depending on the asset, this time period can vary. For instance, if you purchase a software system for your computer, the software will depreciate over a period of three years. If your computer already had the software system programmed in it, it would depreciate over a period of six years. However, there are some startup costs, namely organizational expenses, that can be deducted in full for the year they were purchased. This would require amortization.

Amortizing Startup Costs

Amortization is the process of deducting your startup expenses over a period of time, rather than deducting the startup expense in full in the year it was incurred. There are some rules that apply to amortizing startup costs, namely, the costs be incurred prior to establishing the business. There is some good and bad news about using amortization to stretch out your startup expenses. You are permitted to choose your own amortization pay period, however, once you do, you are stuck with it for good. The IRS will not allow you to make changes to the amortization. You choose.

Startup Costs That Cannot Be Deducted

Not all startup expenses are deductible. Certain costs, like vehicles and motorized equipment, are taxed the same way they would be if you have been operating your business for years. Such assets would require capitalization and depreciation, just like regular business expenses. Additionally, startup expenses are only deductible if they are incurred during the establishment and opening of a business. Any operating expenses incurred after you’ve started a business do not qualify as a deduction.

Are you looking for trustworthy business tax advice regarding your Indiana business? Contact Aspire CPAs, PC at 317-469-4500 to speak with a licensed accountant who specializes in business tax planning and preparation in Indianapolis, Indiana. You may also request an appointment, online.

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