If you are reading this, you can be saving tons of money by deducting the startup business costs listed below.
When starting a new business, it is common for entrepreneurs to forget about certain details that may not contribute to the immediate growth and creation of his or her idea.
The purpose of this article today is to serve as a reminder or bring awareness to some hidden secrets that can help you out in the long run financially.
As we head into 2022, keep these 4 startup business costs in mind to make sure you are saving as much money as possible for your business.
1. The Cost Of Going Into Business
When starting a new business, the absolute best thing you can do is record every expense related to your startup.
If there are even costs related to research and development before even launching the business, then this can be listed as a deduction as well.
For example, if you are selling a product and need to create a few prototypes before launching, you should track down the dates and costs associated with this endeavor.
You don’t need to use anything fancy, just simply create an excel spreadsheet that shows the date, cost, and item that was purchased during each step of your journey.
This should be obvious, but make sure that every expense you track is directly related to starting your new business as this is what the IRS will want to see and also keep in mind the timing of each expense in relation to the creation of your new business.
If you have a related expense that was incurred five years before creating your business today, it will be more difficult to make the correlation that this expense was a direct result of starting your business.
According to the IRS, the first $5,000 of your beginning startup costs can be immediately deducted within your first year as well as $5,000 of organizational expenses as well as long as you have spent less than $50,000 in startup expenses in your first year.
Organizational expenses tend to include the following:
- Legal fees
- State fees for establishing business entity
- Accounting Services
Common startup expenses tend to include the following:
- Research Expenses
- Office Space
Read our article from last week to learn how to get a business license in case you haven’t obtained one yet.
If you spend more than what you are eligible to receive, you have the opportunity to amortize your costs over a 15-year period.
Read more about how this works here.
2. Services and Subscriptions
As mentioned above, subscription expenses can be deducted if they are directly related to the operation of your business.
This means that if you use software to manage accounting, inventory, increase sales or customer engagement, or anything else that helps your business make money, then it can be listed in the “other expenses” category when filling out your tax return, however subscriptions related to entertainment may be more difficult to deduct.
It is important to consider how you pay for your subscription service as you may deduct expenses differ depending on the frequency of your payments.
Learn more about this in this article here.
You can also use your personal cell phone as a tax write-off if you use it for business use as well.
Watch the video below to learn more about that.
3. Business Meals
Now while this idea sounds exciting at first, it is important that we are careful in which meals we deduct.
Just because we can write off meals, doesn’t mean that every time we eat we can deduct the expense from our taxable income.
Because of the recent 2017 Tax Cuts And Jobs Act, entertainment expenses are no longer tax-deductible.
Before this act, business owners had the ability to deduct costs if they take a client out for a meal and a show or sporting event, however, now only the food and beverage expenses can be included.
Now although this may not limit the idea of a business meal, it is important to clarify what exactly a business meal entails.
Generally, business meals are meals that take place with a:
- Business Partner
- Potential Employee
To further clarify, this means that these items listed below DO NOT count as business meals:
- Lunch With Friends
- Lunch With Family
- Snakcs/ Lunch Everyday At Work
4. Business Mileage
Just like many of the expenses that are deductible, it can get a little tricky to know the best procedure to write off business mileage.
This expense often leads people to wonder if it is better to record the miles driven related to their business or to simply record the amount they spend on gas each week.
To begin, miles driven to and from work can NOT be deducted from your taxable income.
However, if you have a legitimate home office that has been recorded as your primary place of business and you need to travel to other locations for certain jobs, then most of your miles spent driving CAN be deducted if they are related to business.
Since the recent Tax Cuts And Jobs Act, many previous deductible expenses have drastically changed and there is now a big difference between business miles and commuting.
Watch this video to learn exactly what miles can be deducted as business mileage.
There are so many things to think about and plan when starting a new business.
Because of this, entrepreneurs often overlook details that may seem insignificant, but ultimately have a large impact on your business’s financial future.
Especially at the beginning stages of a new startup venture, it is always of interest to a startup founder to save money where they can and reinvest more money into the business.
I hope this article initiates the idea for other entrepreneurs out there to look into other ways to save more money with their business so they can allocate funds to other growth opportunities for the future.
Want To Share Your Startup?
Contact us or leave a comment below to be featured in the next blog post.