Start up costs

[Boozette Jones]

Wondered if any of you know if it's ok to deduct business costs (start up costs) before the actual business opens or starts generating business.

I am currently employed full time and going to massage school at night. I will graduate on Dec 14 but I have invested a lot in my future MT business already and wanted to write that off on my 2006 tax forms. I will be opening in March or April of 2007. Can I write off these expenses for 2006 Or do I need to wait until 2007?

TIA!!

 

[Mnotic1976@yahoo.com]

Keep track of your receipts. You can’t deduct anything until you start your business, which means you'll have to wait until 2007. Then, you can deduct up to $5,000 in start-up costs. However, this doesn’t include assets (like your massage table or any office furniture you buy.) If you bought those before opening your business, you can't deduct those outright. They need to be depreciated over a number of years. IRS has different timelines for different types of assets.

 

[Clampinon]

So if I bought my table AFTER opening I could write it off, but not if I bought it before hand?

I have spent a TON in start up expenses so I will be bummed if I can only deduct 5k.

I'll have to meet with an accountant but I called the IRS and read their PDF business document and it confirmed what you are saying.

It makes it hard to prepare to open a business by having to wait to buy everything! Thanks for the info!

 

[ThaRatChick]

So if I bought my table AFTER opening I could write it off, but not if I bought it before hand?

Furniture and equipment must always be depreciated over time, no matter when you bought it. For instance, you buy a massage table for $1000. You figure how many years you think it will last, let's say 10 yrs. Then you would be able to deduct $100/year ($1000 divided by 10) for the next ten years.

Hope this helps,
Angie

 

[Pompal 09.]

Furniture and equipment must always be depreciated over time, no matter when you bought it. For instance, you buy a massage table for $1000. You figure how many years you think it will last, let's say 10 yrs. Then you would be able to deduct $100/year ($1000 divided by 10) for the next ten years.

Sorry Moogie303, but that's not true. You can chose a Section 179 deduction to deduct up to $100,000 of assets in the year in which you bought them. This won't help Monique, because you can't use this deduction for items purchased before starting your business. It will help for future purchases made after opening her business, though! I use the Section 179 deduction whenever I can. However, if you choose to depreciate assets (which Monique will have to do for those items purchased this year) you don't choose a random depreciation based on how long you think something will last. The IRS sets the time. For example, computers get depreciated over 5 years. Furniture gets depreciated over 7 years. Your accountant should have all the details, or your can call the IRS with questions as well.