Contributed by: PhillipB, FreeTaxUSA Agent, Tax Pro
If your new business was still in the start-up phase and the business received zero gross income, you would not file a schedule C until the business starts active operations of the trade or business.
What do I do with the expenses I had during the start-up phase?
The tax law allows entrepreneurs a start-up expense deduction of $5000 in the first year a business is in operations. There’s a deduction available with similar rules for organizational expenses (examples include professional fees to attorneys or accountants). Prior to the opening of the business, if the start-up and organizational expenses exceed $5,000 for each type, the remaining expenses can be amortized over 15 years.
Keep good records of all the expenses paid out as you get ready to open for business. When the first business tax return is due, add all the prior start-up and organizational expenses together for the total start-up and total organizational expenses.
On the tax return for the first year, the first $5,000 of start-up business and organizational expenses will be reported as miscellaneous business expenses. Any amount over $5000 for each type of expense will be entered as an “intangible asset” in the Depreciable Assets section.
When is my business actively operating a trade or business?
If the business is opened next year, but no income is received in that year you still file a schedule C and report all your expenses (including the start-up and organizational expenses).
Factors to consider in determining if your business is open include:
- You start advertising your business to the public
- You open a business location
- You have active contracts
