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Starting a New Business?

You may be eligible for tax breaks

Pretty waitresses working with a smile at the coffee shop

Most people do not want to pay any more tax than they have to pay. This goes for your personal taxes and for any business taxes you may file as a business owner. If you are thinking of starting a new business, here's something to consider: There are some business tax breaks you can take advantage of when starting anew. Here's a closer look.

Start-Up Costs Are Deductible

The Internal Revenue Service allows you to deduct the start-up costs that come with opening a new business. This includes any costs associated with the research you did to determine how and when to start your business. It also includes various expenses that come up once your business actually opens. 

The Three Types of Startup Costs

The IRS divides startup costs into three categories. If an expense falls into one of these three categories, you can claim a deduction for it on your Schedule C, which is the tax form that declares profit and loss for your business. The three categories are:

1. Research and Surveying Costs

This category includes any costs associated with the research you had to do in order to determine whether you should open the business, where it should operate, and how it should operate. If you traveled to different cities to see how similar businesses run, you can deduct the cost of that trip. If you hired a marketing team to do research and determine what your target market should be, that cost qualifies as well.

Note that you can only deduct these costs if you actually ended up opening the business. If you did the research and decided not to open a business, check with your accountant—you may be able to deduct the expenses on your personal taxes.

2. Preparatory Costs

These are the costs that arise after you've officially decided to open a business, but before your doors officially open. Examples include:

  • The costs associated with finding and hiring employees
  • Initial advertising expenses
  • Attorney fees (such as a fee to keep an attorney on retainer)
  • Accountant fees
  • Utility startup fees
3. Organizational Costs

These costs are those that you pay to various organizations and government agencies in order to open your business. For instance, if you open a restaurant and need to pay an inspection fee to the local health department, that qualifies as an organizational cost. If you have to pay a local organization in your industry to join and attend meetings, that likely qualifies, too.

Other Business Tax Breaks for New Businesses

Another way new businesses can take advantage of tax breaks is by depreciating the new equipment they buy as they begin to operate. Depreciation means that you get to deduct a portion of the initial cost of an item each year over a period of several years. So, for example, you may buy a new commercial oven for $5,000. You can depreciate it over five years, which means you get a $1,000 deduction each year for five years.

A few other business tax breaks that apply to new and existing business owners alike include deductions for health insurance costs, business use of a personal cell phone, and business-related travel costs.

Starting a new business can be expensive, but various business tax breaks can make it more affordable. Talk to an accountant to get a better idea of which costs you can deduct as your new business begins to operate. 

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