Can I deduct start up costs after my first year of business?

[pnwcommtax]

Basically, its a business but I haven't earned income for it yet. However, I know I can deduct $5,000 my first year and the rest over 15 years (amortized) as long as it is no more than $50K. But I haven't earned income when I started the business and I want to know if I can deduct my start up costs in later years?

[TaxGuyBill · Accepted solution]

The Startup Expenses (starting with the $5000) starts when the business actually starts (open and ready for business).

No, you don't have an elective choice to not claim it in the year the business opens.  You do have the the option to not claim the $5000 and then amortize the entire amount over 15 years.

If you have no business income, the loss will likely be eligible to offset other income on your personal tax return.

[pnwcommtax]

When you say "Open and Ready" do you mean when its receiving income even if the "business" started last year in September? I understand that if I don't elect the start up costs then I could choose to amortize up to $50,000 of costs over 15 years. If I understand correctly, I could essentially deduct the $5000 as a start up cost the first year I earn income but not the first year the business opened because I have no earned income therefore, I cannot deduct costs when there isn't earned income for the business.

[TaxGuyBill]

'Open and Ready' does not mean it is receiving income.  It is READY for income (customers have the opportunity to come to you and pay you, even if nobody actually hires you).  So if customers/clients were able to come to you in September, that is when the business started.  If you were just doing preliminary work for the business but not available for customers/clients until a later date, you use that later date.

No, you can claim any valid deductions, including Startup Costs, if your business is open.  There is not a requirement for there to be income.

[pnwcommtax]

The business would be life coaching. Its basically a Schedule C, I have costs incurred involved with travel, but how can I deduct expenses if I don't have income? It would just be negative towards my w2 income on my 1040 and I would be subject to less tax liability? I asked this question before and I was told I couldn't deduct the costs until I made income.

[pnwcommtax]

This was the OP reply to my question:
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If you are setting up a self-employment business, you can't deduct any expenses until you actually have income.  Then, your start-up expenses are either deducted all at once in the first year your business is operating (up to $5000), or amortized over 15 years, or a combination, depending on the amount.  For any self-employment, your income and expenses are reported on Schedule C and used to determine your net taxable income or profit.  This is completely separate from itemizing personal deductions like mortgage interest and charity contributions on schedule A.

You can't deduct expenses for one job against the income from another job.  If you have no self-employment income in 2016, then you just file a normal tax return using your W-2.  The only business expenses you could deduct would be expenses related to the W-2 job, and those are itemized deductions subject to the 2%rule.

Also, expenses for education and training to change jobs or meet the minimum requirement for a new career are never deductible.  You can deduct education and training expenses that you pay to maintain or improve your qualifications for your existing job or career.

[TaxGuyBill]

As I said before, it is deductible when you are open, and it would offset other income on your tax return.

On another note, how do you have Travel expenses for Life Coaching before the business opened?

[TaxGuyBill]

That prior comment was wrong.

Reading through your prior posts, do you have a tax preparation business?  (1)  You need to post questions about your tax preparation business on a professional forum, not on this forum (2) You can't use TurboTax for your clients, and (3) Sorry to tell you, but you really need to work on your tax knowledge before you do other tax returns for clients.  More to the point, you need to learn HOW to look up and research answers to basic questions like this.

[pnwcommtax]

I’m taking a course through the income tax school and they have scenarios such as this that are confusing and I try to research over the publications but I can’t understand what to answer. What would you recommend in regards to researching this basic information so I don’t have to ask here? 1700 pages of tax law is anything but basic.

[pnwcommtax]

To be clear, this is for my own personal tax knowledge, not for anything related to businessz

[TaxGuyBill]

Read Publication 17 and Publication 334 in their entirety, and read them with understanding (look up, research, Google anything that you don't understand in those Publications).
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p17.pdf">https://www.irs.gov/pub/irs-pdf/p17.pdf</a>
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p334.pdf">https://www.irs.gov/pub/irs-pdf/p334.pdf</a>

However, you just said this is NOT for a tax business, is that correct?  Realistically, if this is just for your personal situations, you are MUCH better off to go to a tax professional than to learn everything.  Focus on what your business actually does, and hire experts (such as tax professionals) for everything else.  THAT is a recipe for a successful business.  When you try to do everything for your business (such as learning everything about taxes for your own non-tax business), your business will not be as successful.

If you are trying to start a tax preparation business, after reading (and understanding) Publication 17 and Publication 334, you may consider taking a class to become an Enrolled Agent.  That will PACK your head full of information.  Another way to learn things is to go on forums such as this, find a question that you DON'T know the answer to, and research the answer via IRS Publications and Google.  That is how I learned A LOT of my knowledge.