Announcement

Collapse
No announcement yet.

Deducting the costs associated with starting up (i.e. when can you?)

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Deducting the costs associated with starting up (i.e. when can you?)

    We're a startup on the east coast and as things stand now, we're looking at opening our doors in the first or second quarter of 2018. We're incurring costs this year though and I'm wondering if these costs can be deducted from our taxes. I understand that there are a lot of variables here including the manner in which the business is set up so this is more of a general question. And yes, it's probably a better question for an accountant. BA membership, 2017 CBC attendance costs, graphic designer, attorney fees, etc...I'd like to be able to deduct these costs when we file next year if possible and I know I'm not the first person to consider this.
    Thanks,
    Dean

  • #2
    Help is on the way...

    Hey Dean,

    We are in the process of starting up as well (hopefully opening Fall 2017). I am a CPA in my day job, so can be of some help, without plugging a business. I wont get into the technical guidance as it can be daunting. Here we go:

    Bottom line: You CANNOT deduct business expenses until you business is operating to make a profit. The IRS does not do a great job of defining "operating to make a profit" however, in practice, at a minimum this would mean having a certificate of occupancy and brewing beer. Essentially, having your doors open.

    Start Up Costs (i.e. cost you incur prior to operating for a profit): If you do not know the difference between capital expenses and deductible expenses, i suggest you get an accountant. PM if you want additional help on things. But essentially, you CAN deduct $5,000 in business start up costs (i.e. travel, wages, marketing, conferences) and $5,000 in organizational costs (i.e. legal fees, state filing fees, license fees, etc.) in the first year you begin operating. BUT only if your startup costs are under $50K. If they exceed $50K, the deduction will be reduced by every additional dollar and the rest must be capitalized (aka deducted over the next 15 years). You need to be careful with startup costs though as the IRS is very strict on what qualifies and what does not. For instance, brewing equipment would not be included in startup and are capitalized once put into production.

    The manner in which the business is setup should not make to much of a difference whether it be sole-prop, partnership, LLC or corp. C-Corps are a little more complicated but the concepts remain the same.

    Hopefully that helps. Not good news (pretty typical when dealing with the IRS).

    Let me know if you have any questions,

    Brendan

    Comment


    • #3
      Originally posted by dnitty View Post
      We're a startup on the east coast and as things stand now, we're looking at opening our doors in the first or second quarter of 2018. We're incurring costs this year though and I'm wondering if these costs can be deducted from our taxes. I understand that there are a lot of variables here including the manner in which the business is set up so this is more of a general question. And yes, it's probably a better question for an accountant. BA membership, 2017 CBC attendance costs, graphic designer, attorney fees, etc...I'd like to be able to deduct these costs when we file next year if possible and I know I'm not the first person to consider this.
      Thanks,
      Dean
      We are also opening late 2017-early 2018 (in ARK). My advice, get an accountant! They are worth every penny! I'm not a fan of paperwork, which I didn't take into consideration when I told my husband "hey, lets open a brewery", dear god, the paperwork that is involved. I try to organize everything the best I can so it saves time (time=$) for the accountant, she knows her stuff and has helped us know when and where we need to spend and not spend. We have been buying equipment out of pocket and she has helped us understand depreciation and all that jazz.

      Comment

      Working...
      X