Tax Deductions Only for New Businesses


What Tax Deductions Can a Small Business Make?


If the time has come for you to become your own boss — I salute you!

There are few paths to wealth that rely only on a salary. The ‘millionaire next door’ frequently runs their own business and usually has a few sources of income.

Here at Osprey, we specialize in helping small to medium-sized businesses deal with more than just tax issues! But today, we will address some unique tax deductions for starting a new business.

The key point: The IRS allows up to $5,000 in deductions for both the start-up and the organization costs in your first year of business. This means if you are choosing to hang a shingle or open a business, you will have up to $10,000 in deductions for that first year.

Please note that this is only for costs under a total of $50,000. If you go over that amount in expenses, you need to subtract your deductions from the amount you went over. In a nutshell, if your expenses are over $56,000, then you will have removed all $5,000 of deduction. If that is the case, you can amortize the costs over a few years, which is a more in-depth process than this blog addresses.

If you attempt to start a business and then change your mind, you will not receive these deductions. They may fall under the category of a capital expenditure resulting in a capital loss, but again, that is off of today’s subject.

So what kind of expenses can you deduct?


Before your launch:

  • Feasibility studies
  • Analysis of market and product options
  • Competition analysis
  • Research of labor supply
  • Travel for site options

As you launch: Any costs associated with your business launch.

  • Recruiting
  • Rent
  • Hiring and training employees
  • Securing suppliers
  • Advertising
  • Professional fees
  • Equipment

Organization Costs: Costs to set up your business.

  • Setting up your legal entity (corporation, LLC, or a partnership)
  • State and legal fees
  • Director fees
  • Accounting fees

So that is a quick review of some of the sizeable tax incentives should you choose to start up a new business. While not an exhaustive list, this is a good example of the most common deductions. If you’ve missed some of these deductions, you can apply retroactively for them. Be sure to talk to a tax professional before you do since there are some limitations. 

I would be honored to talk to you concerning any or all of these options. Here at Osprey, we have decades of experience empowering our clients and their businesses to thrive.

Feel free to call or email at your convenience.