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posted Feb 7, 2024 3:24:06 PM

Small Business startup costs

We are starting a new business and have many startup costs this year 2023. However, we won't have any income for it until 2024.  Some of the startup costs include classes for certification as well as travel to the certification school.  How do I handle this on my taxes this year?

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Expert Alumni
Feb 7, 2024 4:31:50 PM

Your question addresses two issues.  First is the destructibility of business related education expenses, and the other is how to handle start-up costs.

 

Deducting Business Education Costs - In order to deduct the cost of business education, one of the following must be true for the educational cost incurred:

 

  • The education or training must be for education that maintains or improves skills needed in your present work, OR
  • Your employer or the law requires the education to keep your present salary, status or job.

Even if the education meets either of these tests, the education can't be part of a program that will qualify you for a new trade or business or that you need to meet the minimal educational requirements of your present trade or business.

 

Neither of the following can be true as it relates to the educational expense:

 

  • The education cannot be part of a program that will qualify you for a new trade or business. This means that if you will now be able to enter a new profession that you could not perform work in before, the expense cannot be deducted. 
  • The education cannot be needed to meet the minimal educational requirements of your present trade or business. This means it if the work requires a masters degree, as the minimum education required to enter the profession, the masters degree cannot be a business deduction. 

Based on the very limited information you posted, it sounds like your education may be for a new profession, in which case it would not be deductible.

 

The IRS has an interactive tool that you can use to help determine if your education expenses are deductible:  Are my work-related education expenses deductible?

 

Star- Up Costs 

 

Start-up costs are deductible, up to a certain point, and then they have to be capitalized and amortized over 30 years.  You cannot deduct your start-up costs until your business has actually started.  Therefore, if you incurred start-up costs in 2023, but your business didn't open/start until 2024, you cannot deduct them until 2024.  For more information on start-up costs, see the following TurboTax Help article:  Start-up Business Tax Tips