Can I deduct expenses for a start-up business that doesn't exist yet (courses, books, tooling, etc.)? If so, do I need the "Self-Employed" version for this?

[ttuser]

I have an unrelated rental property and sole proprietorship for it, but no business entity of any sort for my new projects. Can I just do it all in the "Premier" version along w/ my rental? Thank you!

[DanO]

When you can deduct start-up costs depends on when on the business start date is and on what can actually be deducted. Generally, you can go back a year to figure the start-up cost from when you start the business.

But regardless, you will want to use the Self-Employed version if it is a sole-proprietor business.

With self-employed you will be able to track all of your income and expenses on a Schedule C, and this will track your self-employment taxes.

As for startup costs not everything is deductible.

According the IRS, startup costs are "amount paid or incurred for ;

• Creating an active trade or business, or
• Investigating the creation or acquisition of an active trade of business."

What is not included in startup cost;

• Costs to qualify to get into that type of business (getting a real estate license, for example).
• Costs of buying business assets (like a building, equipment, or vehicles). These costs are considered separately for tax purposes.
  

Purchase of tools and equipment would be depreciable assets.

Click here for an article for startup deductions.

Click here for a link to 3 Deductions for Startup and included link to IRS Pub 535.

[ttuser]

Thanks so much for the quick response! So if I'm understanding correctly, I can't deduct those startup costs until after a business is already started as in I've filed for a sole proprietorship or LLC for the business itself? If it helps, some examples of things I am thinking to deduct are the cost to join an incubator for entrepreneurs, a 3D printer, rotary tool, laptop, monitor, desk, materials for prototyping, things like that. Some of these definitely seem more like assets (3D printer, laptop, etc.) whereas perhaps I can consider the incubator and materials for prototyping as startup costs? Since I don't have a business off the ground yet, do I understand correctly that even though the money was spent in 2017, I shouldn't include them in my 2017 taxes? Thanks again!

[DanO]

You would claim the start up deductions in the year you actually start your business and you can claim expenses going back a year. Most everything you listed above would be assets that are not deductible but rather depreciated. Materials and supplies, organizational costs, advertising would be start up costs.
I can't give a definitive answer on the business incubator. I would say the cost involved in getting in would be a startup cost, but once in then the costs would be deductible business expenses. Generally you need to have a business in place and then get into the incubator to lower your overhead and have guidance and training to be successful.
You may want to try search for anyone who has used the business incubator to see what their experience was like.