You can either deduct or amortize start-up expenses once your business begins rather than filing business taxes with no income.
However, if you were actively engaged in your trade or business, but didn't receive income, then you should file and claim your expenses this year.
Actively engaged in business means a bona fide business concern having conducted commerce, trade or industry.
Start up costs can be deducted in the year you actually start your business.
Some startup expenses, such as organizational costs, can be either amortized or you can deduct the full cost in the year you open.
But if you choose amortization, certain rules apply:
• The costs must be incurred before you open for business.
• The associated costs must have also incurred if your business had been operating for years
Amortization is somewhat similar to capitalization in that it also involves stretching deductions out over a period of time. You can choose your own amortization period, but when you do, you’re stuck with it. The IRS won’t allow you to change it later. If you decide to amortize costs rather than deduct them outright, it can benefit you in future tax years. It might be an option if your business isn’t bringing in boatloads of income in its startup year but you expect to make a nice profit in future years, so the tax break would be more beneficial then.
Some costs don’t qualify as startup expenses
Some equipment you must purchase is treated as a regular business expense. For example, if you’re opening a landscaping business and you buy a truck, generally you must capitalize and depreciate the cost. Such expenses are treated just the same as they would be if you had been operating your business for decades.
Timing can be important
Timing matters, too. “Startup costs are only deductible if your business does indeed start up,” says Capelli. “And they have to be incurred during the planning and development phase of your business. Otherwise, after that, they become operating expenses.” The flip side to this is that even though your business isn’t operational yet when you incur startup expenses, you can deduct them or begin to deduct them in your first year of business.
Click here for additional information on startup costs.
Click here for a video and information on taking business expenses.
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