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Tax Court Halts Start-Up Cost Deductions


In a new Tax Court case, Antonyan TC Memo 2021-138, 12/13/21, a taxpayer could not currently deduct any expenses as start-up costs because he never went past the preparatory stage.

Jan 6th 2022
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Start-up cost deductions are normally allowed, but as a recent Tax Court case shows, clients need to prove the business is operational.

Background: Normally, a business is required to amortize start-up costs over a period of 180 months. However, you can write off up to $5,000 of qualified start-up costs that would otherwise be deductible as ordinary and necessary business expenses if the operation is “open for business.” Typically, the list of qualified expenses includes the following:

Studies of potential markets, products, labor supply, transportation facilities, etc.

Advertisements for the business opening

Salaries and wages for employee training

Travel and other necessary costs for securing prospective distributors, suppliers or customers

Salaries and fees for executives and consultants or for similar professional services

If the business exceeds the $5,000 limit for start-up costs, the excess must be amortized over 180 months. Caveat: The $5,000 write-off is phased out on a dollar-for-dollar basis for costs above $50,000.

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