What to do with Start Up Costs?
Often the question is asked. What do I do with all the money I put in my business to get things off the ground and running? To this question most good CPAs will tell you, "it depends".
Most of the time when a business pays money for a necessary item it is considered an expense under IRC 162 and the business gets a deduction to reduce it's taxable income. However, when starting a new business venture, this may not do the business owner much good as they don't have income that needs to be offset. In comes the Internal Revenue Code to switch things up and say that under Code Section 195 these pre-business expenditures should be capitalized and amortized over a period of time once the business starts it's active trade or business. This is nice because for the next 180 months after starting to collect revenue, there will be a small amortization expense to immediately start to offset it before having to pay tax on it.
If there is a small income in the first year and the business has more than $50,000 of expenses for that year, the business owner can also elect to take part of the start up expenses, $5,000 in that first year.