Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.
~IRS
A startup cost is an expense incurred during the process of creating a new business. These costs can include things like:
- Business formation fees
- Business licenses and permits
- Equipment and inventory
- Marketing and advertising
- Legal and accounting fees
- Rent and utilities
- Employee salaries and benefits
- Training and development
For a full list or questions, please contact your CPA or see IRS Publication 535 which covers business expenses and maybe more importantly, what you cannot deduct.
The IRS allows businesses to amortize startup costs not deducted over a period of 180 months. However, there are some expenses that are not considered startup costs, such as:
- Taxes or research and experimental costs
- Interest on loans used to finance startup costs
- Expenses incurred before the business has a reasonable expectation of generating income
Here are some tips for managing startup costs:
- Create a budget and track your expenses carefully.
- Get quotes from multiple vendors before making any purchases.
- Look for ways to save money, such as buying used equipment or renting office space instead of buying it.
- Consider seeking funding from investors or government grants.
Startup costs can be a significant financial burden, but they are an essential part of starting a new business. By planning carefully and managing your expenses, you can minimize the impact of startup costs on your business.
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