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Can I claim start-up expenses and no income for my own business?

Yes, you can claim a portion of the start-up expenses in the first year even if you don't have income from your business.

You can deduct up to $5,000 of your business start-up costs:

  • In the year you started the business
  • Paid or incurred before the day the business opens

You must reduce the $5,000 cap dollar-for-dollar by the amount of start-up costs in excess of $50,000 .

Ex: If start-up costs are $51,000, the cap is reduced to $4,000. If start-up costs are $55,000 or more, the $5,000 deduction is completely phased out.

You can amortize the remaining start-up costs over 180 months, starting with the month business begins. You might be able to treat start-up costs as nondeductible capitalized costs. You’ll do this if you don’t deduct them the year:

  • You incur the costs.
  • You amortize the costs over 180 months.

You can't recover these costs until the business is dissolved.

Start-up costs are usually costs incurred before the business opens. (Ex: advertising costs for the opening of a business). They are the costs incurred in connection with:

  • Investigating the creation or acquisition of an active trade or business
  • Creating an active trade or business

Businesses don’t have to make a formal election to deduct start-up costs incurred or paid after Sept. 8, 2008. Instead, businesses make their election in the first year of business by either:

  • Deducting the cost
  • Amortizing the cost

Once made, you can change the election only with IRS consent.

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