Business start-up costs are deductible in the taxable year in which an active trade or business begins.
Start-up expenses may include training wages, pre-opening utilities, rent, advertising, depreciation and any exploration costs. If you are starting a business, you’ll want to separate certain expenses to ensure they get the proper tax treatment. The two categories of start-up expenses are:
• Expenses you incur in exploring and setting up the business. You may deduct up to $5,000 of start-up costs in the first year. The remaining expenditures are amortized over 180 months, beginning in the first year your business begins.
• Expenses you incur from the time the business officially begins. These are currently deductible.
Before the IRS will allow you to claim a deduction, your business activity must actually commence. If a business has yet to engage in its core business activity, the IRS will likely disallow any start-up expense deductions.