Is a 10% penalty on 529 non-qualifying withdrawal deductible as business expense or business startup costs?

[cw5]

I have money in grown kids' 529 accounts that will not be used.  I'd like to withdraw the money as part of start-up expenses for a new business this year.  If I do so, it will be a non-qualifying withdrawal and I will pay taxes on it and also a 10% penalty.  Can I deduct the amount of the 10% penalty as a business expense for my new business?  Thanks.

[MichaelL1 · Accepted solution]

The penalty is not deductible as a business expense (as it is unrelated to the business activity). It is non-deductible on the return. 

Penalties are not deductible.

Many states give you the option of transferring the money in a 529 to the grandchildren (if you have some).

[cw5]

Thank you for the quick reply.  In my view the penalty is related to the business activity because it was the cost of gaining startup money for the business, but I guess I'm looking at it too liberally.  

[MichaelL1]

Wish I could give better news, however want to keep you out of trouble with IRS.