Business & farm

Start up costs are those expenses incurred in planning and setting up the business, costs you incur before you open the door.

A portion of startup and organizational costs can be expensed (written off in your first year). The remainder can be amortized (written off over a period of 15 or more years). Here is how it works:

Expenses paid or incurred after October 22, 2004: 

 - You can deduct up to $5,000 in startup and $5,000 organizational costs as current expenses if the costs are under $50,000, respectively.

 - You can choose to amortize startup and organizational costs greater than $5,000, respectively, (but less than $50,000, respectively) over a period of 15 years.

 - If your startup or your organizational costs are more than $50,000, respectively, the excess amount reduces the amount you can deduct.

For example:

You opened a pet supply store in January 2016. You spent $52,000 to research the market, paint the building, hire a handyman to install shelves, pay for electricity and phone service before you opened the door to customers.

You can deduct $3,000 worth of startup costs as a current expense in 2016: $5,000 - ($52,000 - $50,000) = $3,000. And you can amortize the remaining $49,000 over 15 years.

Note: A cash-basis business cannot deduct or write off (amortize) these costs until they are actually paid.

Examples may include:

- Market Research

- Travel Costs

- Salaries

- Consulting fees

- Accounting and Legal Fees

- Pre-opening advertising expenses

- Overhead

- Employee Training

- Equipment

- 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.