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dangimar
Returning Member

Start-up costs deductions for an online business

I'm about to create an online business that will include a blog + membership + courses + youtube channel.
I planned to create my company this year (DBA or LLC), but I'm still not ready.
In the last few years, I've been creating courses and buying software that I need to make my website, create videos, etc. (start-up costs).

For tax purposes, It would be good to deduct these costs in the tax return 2022 because I made money through investments.
Next year, my only source of income will be my business, and I'm sure it will take some time to get any income so those deductions won't help much.
If I create my company before the end of 2022, will I be able to deduct those expenses? I won't start selling courses until 2023.
I read that the question is not when you create your LLC but when you act like a business. Is building a website enough to act like a business? Is adding information to my website (videos, tutorials, blog posts, etc.) to attract people (marketing) enough to deduct those expenses?

6 Replies
Opus 17
Level 15

Start-up costs deductions for an online business

Start-up costs are handled in the first year the business is active.  You don't need to make a profit, but you need to be actively engaged in ongoing business activities--recruiting clients, finding customers, producing videos, etc.  Just having the business exist on paper is not enough.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Carl
Level 15

Start-up costs deductions for an online business

In the last few years, I've been creating courses and buying software that I need to make my website, create videos, etc. (start-up costs).

You really should seek professional help for your first year actively in business. Generally, software used for the production of income is considered an asset that gets depreciated over 3 or 5 years, and not something that gets expensed as a business expense or start-up costs. Now I say "GENERALLY' because specific circumstances matter. That's why you need professional help here, as absolute perfection on taxes in that first year of business is not an option; it's a must. Even the tiniest of mistakes can be very costly when realized a few years down the road. I've heard of situations where a "tiny" mistake that was caught years later resulted in fines, penalties, late fees and back taxes that bankrupted the business before it was even off the ground.

Opus 17
Level 15

Start-up costs deductions for an online business

I was answering "when" to deduct start-up expenses.  How to deduct them is a whole other article.  Some expenses can be deducted as expenses, some must be amortized, and assets must be depreciated.

 

"I read that the question is not when you create your LLC but when you act like a business. Is building a website enough to act like a business? Is adding information to my website (videos, tutorials, blog posts, etc.) to attract people (marketing) enough to deduct those expenses?"

 

You must be actively engaged in the business.  What exactly that means depends on the business. If you are posting content online with the intention that people will see it and interact with your business, that sounds active to me.  If you are creating a content library but have not started to post/share/distribute it, that's a tougher question, and if you don't have a clear sense of whether you are "actively" engaged in business, you might want professional advice.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
dangimar
Returning Member

Start-up costs deductions for an online business

Thanks for your advice. I'm planning to talk to a CPA, but I wanted to have an idea about my options.

dangimar
Returning Member

Start-up costs deductions for an online business

That's what I thought. Thanks

dangimar
Returning Member

Start-up costs deductions for an online business

Yes, that was my point.  Thanks

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