You can deduct up to $5000 of your business startup costs and $5000 of your organizational costs during the first year you’re in business. You can get more immediate tax benefits from them, instead of waiting to recover these startup costs when you close or sell your business.
The IRS sets a $5,000 deduction limit on startup and organizational costs. Once your business begins, you can deduct the cost of all such items as business expenses. However, the maximum deduction for start-up expenses in the first year you are actively in business is $5000. The balance over $5000 must be amortized over the following 15 years.
Claiming Expenses Without Income
If you have no income but did have expenses, you may claim your expenses by filing taxes. Many Schedule C filers are just getting their businesses started. You can claim the loss whether your company actually ran in the red or only lost money on paper.
As an LLC, you can deduct startup costs, supplies, salaries, and other operating expenses.
If you were actively engaged in your trade but didn’t receive income, then file and claim your expenses.
If you had no income but had expenses, file your information return to inform the IRS about payments that could be deductions or credits. No income, no expenses = Filing generally is not necessary. However, filing a Schedule C benefits you if you have deductible expenses or credits.
Deductible Business Expenses
Any expenses before opening your doors are included in start-up costs, except equipment. Start-up costs include, but are not limited to:
- Finding suppliers
- Hiring and training staff
- Advertising
- Professional fees
You can deduct a portion of these over time. Your business loss can offset other income on your tax return.
As a sole proprietor, deduct most regular expenses by filing a Schedule C. Deductible expenses include:
- Salaries
- Rent
- Supplies
- Legal and accounting fees
- Subscriptions
- Online services
Pre-start expenses, such as computers, equipment, and furniture, are classified as capital expenses by the IRS.
Fifty percent of business meals are deductible if they relate to your business, provided you document the date, location, and purpose. Office equipment, like computers, is 100 percent deductible. Expenses that are considered necessary and appropriate for your business are also deductible.