Starting a sole proprietorship requires money — and plenty of it — depending on the type of business you choose and the number and type of expenses you incur.

Unfortunately, you generally cannot recover these expenses until you sell or close the business.

But you can deduct some of the start-up expenses from your income in the first taxable year of your business and amortize the remaining, qualified expenses over 15 years.

The question is: What qualifies as an amortizable expense?

Here are a few tips:

(1) Expenses incurred while investigating the creation or acquisition of a business. This includes any expenses you incur while analyzing potential markets, products, transportation facilities, etc.

(2) Expenses incurred in connection with creating a business. Such expenses include the cost of securing prospective distributors, suppliers, or customers, or of employing the services of an accountant or other professional for setting up your business systems.

(3) Expenses incurred in connection with an activity you engage in for-profit and for the production of income before a business begins, in anticipation of the activity becoming an active business. Advertisements announcing the opening of your business are considered qualifying activities.

You can expense any of these costs only after your business operations officially commence. Other expenses, including interest expenses, taxes, and research and experimental expenditures, are deductible under special rules and are therefore not required to be amortized. Expenses incurred while acquiring equipment are not amortizable.

If this seems confusing, or if you're not sure which of your particular expenses can be deducted or amortized, I can help. I welcome the opportunity to meet with you to evaluate your personal situation. 

Please note the information above is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of the information provided below should not be acted upon without specific professional guidance. Please call us if you have any questions.