Writing off funds from an early IRA withdrawal as business expense

[jswota]

If i withdraw $50000 out of an IRA I will be subject to the %10 early withdrawl penalty. Taxes will be around $15000. So let's say i am left with $30000. If i invest all $30000 in a business start up can i write that off and recoupe most of my penalty? I was hoping to figure out how much of a deduction i would receive so i could invest every possible penny now instead of waiting for a refund in 2018.  Maybe invest $35000-$40000 and save $10000-$15000 for estimated 2017 tax bill.  Can i do that?

Thanks.

[Critter]

Define "business start up" ?

[jswota]

Mostly production costs for a toy I am launching. Injection molds and manufacturing costs.

[Critter]

Certain expenses cannot be deducted upfront as they need to be amortized or depreciated.   I highly suggest you talk to a local tax professional or CPA to discuss your situation.  Your idea of just sinking the money into a business to avoid taxes will not really work the way you want it to.

[jswota]

OK.  Good info.  Thanks.  I will be investing everything i keep (after taxes and penalty) as soon as I make the withdrawal.  I was trying to anticipate ahead of time what i would get back from the IRS.  Just to be safe i will invest anything else i get back when i actually have it in my pocket.  No point getting ahead of myself.  Thanks for your help.

[Critter]

See the answer below ...

[jswota]

Thanks.  Saw that one two.  I was replying to both.

[Opus 17]

The IRA withdrawal is subject to income tax and penalty, full stop.  Anything you do with the money after that is a separate transaction that is not affected by the source of the money, whether an IRA withdrawal or busking in the subway.  Assuming that you could deduct your entire $30,000 start up cost (you can't, but assuming you could) you would negate the regular income tax but you would still pay the 10% penalty.

For business start up costs, you can deduct a limited amount ($5,000) as an expense in the year you first have income.  The rest of your start-up expenses may have to be amortized over 15 years.  Equipment purchases are also subject to depreciation, and there are limits on the kinds of property and dollar amounts that are subject to section 179 accelerated depreciation.  You really should get the advice of an accountant for proper treatment of purchases, start up costs, etc. and getting your business accounts set up to make you audit-resistant.