Starting a new business venture can prove exciting, but rather
costly. There are certain tax advantages that can help alleviate some of
the financial burden associated with entrepreneurship.
A taxpayer may start a business by forming an entirely new business
or acquiring an existing business. One of the most important decisions a
business owner should make is to choose a type of business entity. If
the business is entirely new, the taxpayer will be able to choose the
type of entity from inception; however, if the taxpayer purchases an
entity that differs from the entity of choice, the taxpayer must convert
the purchased entity to the entity of choice. Be aware that each type
of entity—be it sole proprietorship, corporation, or partnership—comes
with its own advantages and disadvantages.
Regardless of the type of business entity that a taxpayer decides on for his or her new business, a portion of the start-up costs may be deducted, with amortization available for the remainder. Start-up costs are those incurred in investigating or creating an active trade or business before the day on which the active trade or business begins. Further, expenses paid or incurred before a business commences operations are start-up costs. Such costs do not include interest, taxes or research, nor do they include experimental expenditures. In addition, the cost must be one that would have been deductible if incurred in connection with an existing business in the same field.
Eligible start-up costs fall within three categories: investigatory, business start-up, and pre-opening costs. Start-up expenses include: