Business start-up costs are generally capital expenditures, but you can elect to deduct up to $5,000 of business start-up costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up costs exceed $50,000, and the remaining cost must be amortized.
Start-up expenses are costs incurred while creating an active trade or for investigating the creation of a business or trade. This includes expenses incurred when acquiring an existing for profit activity, as well as expenses incurred during the anticipated production of income.
A start-up cost can be amortized if it is an expense that you could normally deduct if it was incurred while operating your existing trade or business, or if it is a cost you pay or incur before the day your active trade or business begins.
Common start-up expenses may include:
• Accounting fees
• Analysis, survey, or study of potential markets, products, labor supply, transportation facilities, etc…
• Advertisements for the opening of the business.
• Office equipment and furniture, setup costs
• Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
• Salaries and fees for executives and consultants, or for similar professional services
Keep in mind that certain expenses must be amortized over 5 years. Such expenses include legal expenses and expenses for setting up the business structure (as an LLC, etc…)