Logos Financial Group - Terrance Hutchins

Start-up costs for your business are treated slightly differently than your other operating expenses. Here's a breakdown of the three main start-up tax rules and a bonus one to consider:

🔹 Rule One: Deduct up to $5,000 in the first year. Excess over $5,000? Amortize over 15 years. Restrictions apply if expenses exceed $50,000.
🔹 Rule Two: Amortize your start-up costs over 15 years.
🔹 Rule Three: Hold off on deductions. Recover these costs when selling or closing the business.

🌟 Bonus: Business organizational expenses can give an extra up-to-$5,000 deduction, exclusive for business entities. This is on top of the start-up cost deduction.

For instance, Sasha's rock climbing shop, Rox, had $14,000 in start-up costs. Depending on the rule she chooses, her deductions vary. If she opts for Rule One, she can deduct $5,000 immediately and then $600 annually for the next 15 years. With Rule Two, she'd deduct $933 annually over 15 years. If she goes with Rule Three, she'll recover the $14,000 when she sells Rox.

Additionally, Sasha spent $1,790 on business organizational expenses for Rox, Inc. This is deductible in addition to her start-up costs.

But what is she had never opened? The costs might not be deductible as business expenses, but they could be as investment expenses.

If you are a high earner then you should look into taking advantage of the “paycheck raise” you get once you have paid the maximum social security for the year. You pay social security on the first $147K of wage income you make in 2022. This number is generally inflation adjusted upwards annually. If you are used to paying social security throughout the year then when you get a higher paycheck you have the option to utilize that money towards investing in your future. Generally if we aren’t intentional about allocating “extra money” it will get absorbed in our day to day living. If applicable, use this end of year “raise” to invest or pay down debt. .