Business Startup and Organizational Costs Deduction Election

RoofMaxxKirkland · ‎September 10, 2021

The IRS indicates that a business can elect to deduct $5,000 each of startup and organization costs (as long as the total cost of either does not exceed $50,000), and that the deduction is claimed in the tax year in which the active trade or business begins. Here's the quote from the IRS instructions:

"Time for making an election. The partnership generally elects to deduct start-up or organizational costs by claiming the deduction on its return filed by the due date (including extensions) for the tax year in which the active trade or business begins."

Normally, "the year in which the active trade or business begins" would mean when the business starts doing what it set out to do. In my family business's case, its roof repairs (to put it simply). We were "starting up" from September through December, and didn't have our first customer or any revenue until January... so would we take the deduction in 2020 or 2021?

ZackE · ‎September 10, 2021

Thanks for getting in touch with the Community, RoofMaxxKirkland.

To properly identify which year you'd need to take a deduction for, I'd recommend working with an accounting professional. If you're in need of one, there's an awesome tool on our website called Find an Accountant. All ProAdvisors listed there are QuickBooks-certified and able to provide helpful insights for driving your business's success.

Here's how it works:

Go to our Find an Accountant page.
In the Find an expert in section, choose what you're looking for, then use your search field to enter a City or ZIP code.
Select Search.
Browse through the results and find one that works best for your business. You can click on each ProAdvisor's profile to learn more information about them.

Once you've found an accountant, they can be contacted through their Send a message form:

Use the available text box to introduce yourself. Be sure to include details about which services you're looking for.
Enter your appropriate info in the Your name, Your email, and Your phone number (optional) fields.
Hit Send message.

I've additionally included a detailed resource about working with deductions that may come in handy moving forward: Add or edit a deduction or contribution

Please don't hesitate to send a reply if there's any questions. Have a great day!

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Business Startup and Organizational Costs Deduction Election

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