What can be considered as Start-up Costs?


Starting a business is more than choosing the business name, registering the business with the
State, getting the EIN and more. It also requires planning and budgeting. Most people use their
own money, get some funds from friends and family, or even use their pension from Social Security in the beginning to pay for some ordinary and necessary business expenses. All eligible costs incurred before beginning to operate the business are called start-up costs.

What are Start-up Costs?


According to the IRS, Start-up costs are amounts the business paid or incurred for creating an
active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.

 
Start-up cost is recoverable if it meets both of the following requirements:

• It's a cost a business could deduct if they paid or incurred it to operate an existing active trade
or business, in the same field as the one the business entered into.
• It's a cost a business pays or incurs before the day their active trade or business begins.

 
Start-up costs include amounts paid for the following:

• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business.
Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or
customers.
• Salaries and fees for executives and consultants, or for similar professional services.


Start-up Costs Deduction

IRS limits how much you can deduct for LLC start-up costs.
• If your start-up costs totaled $50,000 or less, you are entitled to deduct up to $5,000 for start-
up costs for the first year and the remaining will be amortized over 180 months.

• If your start-up costs are between $51,000 and $54,000, your first-year deduction decreases
by $1 for every $1 you spent over $50,000 meaning that, if you incur $53,000 in start-up costs before launching your business, you’ll only be able to deduct $2,000 in the first year ($5,000 minus $3,000). After your first year, you can amortize the remaining costs over 180 months.
• If your startup costs are $55,000 and more, you won’t be able to deduct any of those costs in
the first year, but instead, you’ll need to amortize all of them over 180 months.

Special Rules


The LLCs that are set up with two or more members can amortize their startup costs. One- member LLCs are not permitted to do so.
If your LLC has only one member and your start-up costs are $5,000 or less, you may deduct up to $5,000 in startup costs in your first year but if your costs exceed $5,000, though, you must capitalize all of these expenses, but they are not deductible until you sell or dissolve your business.

The bottom line

Proper Tax planning, good Recordkeeping and Tax preparation will help apply all the
deductions, you are entitled to and set your business for success.
For more information regarding start-up costs, deductions, tax planning, bookkeeping and tax
preparation, feel free to visit our website, send us an email via
contact@savvysavingsgroup.com or text to 860-968-6060