Written by Marc R Barnes EA
September 02, 2010
Knowing what expense to deduct.

If you started a new business this year, chances are you have incurred certain costs that may require special treatment on your tax return. These expenses, appropriately called start-up costs, may include fees you paid for professional and consulting services. They also include money you spent on advertising or lining up suppliers and distributors.

If the total amount of these expenses does not exceed $50,000, you can deduct up to $5,000 in the year you start the business. Any amount over $5,000 is amortized (similar to depreciation) over 15 years. If the expenses are more than $50,000, you generally are not allowed this option and will have to amortize the total costs over a 15-year period. For businesses that qualify, the ability to expense $5,000 of start-up costs is a great option.

Update: H.R. 5297 was signed into law on September 29, 2010. This bill increases the 2010 expense amounts to $10,000 in startup costs, as long as they don't exceed $60,000. This amount will go back to $5,000/$50,000 in 2011.