Discussion:How to claim startup costs
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Discussion Forum Index --> Tax Questions --> How to claim startup costs
| 7 December 2005 | |
| Here is a complicated question ...
I lost my normal job in June, they paid me 6 months severence, total yearly payout so far .. about 100k. To survive I had to pay off most of my bills, plus cash in a piece of my reteirment bucket (another 60K) Total now 160 K . I decided to start up a small buisness, bought 25 k worth of equipment, plus 5 k of material. I sold about 5 k so I am breaking even at this point .. living off the bank. This is not working well enough to survive, so I am going to take another regular 9-5 job. Plus keep the buisness open on the side. ... I want to deduct my equipment and whatever I am allowed on my vehical (2004 - Avalanch) to reduce what I might owe on my employed and retirement income. So, Can I do this ? and if I can How much buisness do I have to show in subsequent years so the IRS doesnt dissallow my startup costs, calling it a hobby..and wanting their money back... | |
| 7 December 2005 | |
| All your answers are in the Small Business Publication from the IRS.
Set up costs are amortized. Equipment is depreciated. You can take additional depreciation but it could be a waste of money to take the maximum allowed. If the business is a loss for three out of five years the IRS generally considers it a hobby. anuenue | |
| 7 December 2005 | |
| Ahh .. but the answer to my question ... What is considerd a business that is not a loss ..
Is making 1 or 2 K enough to be considered a sucsess or does it need to be up in the 10 - 20 K range ? | |
| 8 December 2005 | |
| You can write off all 25K of the equipment by electing a 179 deduction even if you have a loss on your Schedule C since you have enough W-2 income. Any amount of profit is fine. The IRS looks at all kinds of factors more than actual profit to determine if you are in business or a hobby. A business CAN lose money more than 5 years in a row and be still considered a business with proper facts and circumstances. The hobby determination is not a sure thing. Write off all related expenses. Do not worry about the size of your loss. You are entitled to write them all off. | |
| 8 December 2005 | |
| Costs incurred before you are able to start collecting fees are called start-up costs are are to be amortized over 60 months. | |
Brandenburg Financial Inc (talk|edits) said: | 8 December 2005 |
| There is now a provision to deduct $5,000 of expences as start up. | |
