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tax question - start up costs

updated fri 5 apr 02


Olivia T Cavy on thu 4 apr 02

Hi Bob,

I don't have Sharon's original message but I will address what usually
happens for US taxpayers with start up expenses for a new business.

What is true is that if you are starting up your business and have
expenses but have not yet "opened for business", those expenses are not
deductible. Many of them are accumulated to be amortized over 60 months
as start up costs WHEN the business is finally operational.

Ideally you start up your business in the same tax year as you spend your
money so you don't have to deal with this issue which is discussed under
the IRC code section 195(a). You CAN actually make this election in the
year in which the expenses are paid (for a cash basis taxpayer) but you
can wait until the year the business opens. We're talking about the type
of expenditures that would be deductible IF the business had been
operational. Capital assets are depreciated when they are actually put
into service.

The answer is that most tax software is not going to do this. It's an
accounting matter, accumulating costs and expenses before the business
opens. And the concept of making the election, providing specific
information required, is normally not a part of most tax software.

A home office is the one possible exception for a business where the
expenses exceed income. On a personal return you may not increase the net
loss by deducting expenses for an office or studio in the home. Those
expenses are accumulated and rolled forward until you have enough profit
to deduct them. Turbo Tax handles this properly and I imagine most other
software would, also.

There are a number of decisions and possible elections that you make when
you file a tax return, and options that might be available if your
situation is not clear-cut and straightforward. I've often recommended
that it is worth hiring a professional to assist with your US tax return,
especially when you are just starting a business. It's the same thing as
many clayarters have said about equipment- sometimes you save a dollar
now that costs you a lot of money later. Sometimes your saved dollar now
is a true saving, but often you just don't know until afterwards.

Bonnie Hellman, CPA in PA & CO

PA work email:
PA home email: (that's the number 10 in the middle of
the letters)

On Thu, 4 Apr 2002 06:37:17 EST Bobbruch1@AOL.COM writes:
> Sharon writes that an artist can roll over expenses that are greater
> than
> income, i.e. a loss into future years to deduct against potential
> future
> income. Any of the tax gurus know if this is correct. Also, if this
> is
> correct, will tax preparation software do this automatically?
> Thanks,
> Bob Bruch
> <<<<<> From: Sharon Villines
> Subject: Re: Tax Question -- Forms
> <<<> roll them
> over to deduct against future business income. (I'm not qualified to
> tell you
> how.)
> Sharon Villines, Arts Coach
> ArtsCoachFAQs now (almost) free!

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