If you are starting a new small business, it is important to note which expenses and initial costs can be written off, fully or partially, for purposes of income-tax calculation. Be sure to follow all the proper procedures and consult your accountant, so that you can legally write off as many of those costs as possible.
Here are some ways to achieve your startup goals:
Understand Your Deductions
If you have spent less than $50,000 on your startup or organizational expenses, then you are entitled to write off $5,000 in both startup and organizational expenses, which may span as many as 15 years.
This rule is especially beneficial to smaller startups where the initial costs are not very high.
File Every Invoice and Receipt
Take care to file every invoice and receipt issued by your suppliers and vendors. If you have just bought a retail location to run your business from, and it needs decorating, you should file your interior decorator’s invoice, too.
A proper invoice should accompany every piece of furniture or computer that you have purchased to run your business.
Even if you have old furniture, you should still make a note of it in your records.
Hire an Efficient Tax Accountant
Hire an accountant who can guide you in understanding which startup and organizational expenses can be written off, and which ones need to be depreciated over a period of years.
The rate of depreciation will vary according to the item and you will need to make appropriate entries when buying or selling furniture, vehicles, computer equipment, etc.
Delay Some of Those Purchases
If you purchase some of your office equipment after opening your business, then you could write them off in the first year as opposed to waiting for the next 15 years.
However, it may benefit you to claim these expenses at a later time. Ask your tax consultant to help you decide which method is more suitable for your business.
Get Guidance from Experts in the Same Field
Get in touch with friends, relatives or business associates in similar markets and ask them about their experience in claiming startup expenses.
Get online and check out pertinent sites (there are many), or become a member of a business association so that you will receive regular updates and bulletins on tax issues.
Get Into Details to Know Your Standing
Note down your one-time expenses such as furniture and your company car. You should also make a note of any monthly recurring expenses such as salaries and utilities. Make sure you know which expense can be claimed fully or partially and which expenses must be depreciated over a particular period of time.
This will give you an idea as to your financial position. You don’t need to get the exact picture, but an estimate will at least give you an indication as to how your first year can end on a positive note.
By using these approaches, you can be sure you are achieving the maximum tax deductions. If your tax consultant can help in saving some of your startup costs, you can build up a cushion and reach your financial goals earlier than you expected.