New business expense deductions

[nhurwitz]

I know this question may be similar to others, but wanted to ask for my specific situation. I am starting a business that has 2022 expenses for software development. Since the development is still in progress, I haven't actively started marketing product, and so no income from that business in 2022. I do have income from other sources.

Is it legitimate to deduct the expenses before actively engaging in commerce of a finished product to offset other 2022 income sources?

If I enter the full total of expenses in TurboTax, will any unused portion of those expenses (not needed to further reduce my 2022 taxes) be available to forward to following years? Or would it be best to only enter the dollar value of expenses needed to maximize my deductions in 2022? Thank you!

[AliciaP1]

You need to be accumulating your start-up costs (even if it crosses a year) that you can begin amortizing and deducting once you "open the doors" and have a product to sell.  You cannot deduct business expenses before you are actually open and ready to serve customers.

See Start-Up Costs for more information.

[nhurwitz]

Thank you, Alicia. I don't know if you're connected with Turbotax or knowledgeable about the home & business software, but do you know if it's best then not to enter the 2022 business expenses at all in this return and identify the expenses as carryovers in my 2023 return when the business will be active? Or is it best not to even reference this business at all in my returns until the there is a finished product to sell?

[AliciaP1]

You are not allowed to enter the expenses for 2022 unless you were ready to "sell" to customers before 12/31/22.  The Start-Up Costs will be a capital asset you amortize once you are "open" and operating.  You should not reference the business on your 2022 taxes since it was not "open" in 2022.

@nhurwitz