Start Up Expenses
I spent about 6 months of 2003 researching and getting supplies to get started investing. Will I be able to deduct my start up expenses (business cards, computer, software, etc.) even though I did not generate any income in 2003. Also is it better to apply for an EIN or Business license first?
You can certainly deduct expenses for your business even if the first year has no income. You don't have to make a profit if you have "profit motive". Under the Internal Revenue Code, a profit motive is presumed if you earn net income in any three out of five business years according to internet sources.
i agree with the above post and then also question how you obtained a bank account without an EIN? Also, if you are serious you should consider incorperating. I have a management company that pays for all expenses and then bills back expenses to the property owning companies.
I don't know what type of business license you are looking to get but an EIN is a must. It takes about 5 minutes online to get one and you can start using it instantly on everything except IRS forms.
Get the EIN. http://www.irs.gov . Also, Frogger, the bank probably just used the SS# to get the account, I would assume.[ Edited by norrist on Date 01/04/2004 ]
In June, 3 of us started our LLC. Because we were a new business, we could not received funding to purchase our first foreclosure. Therefore, I had to sign personally for the mortgage. We rehabbed and still have the house for sell. In order to create a checking acct for the business, we were required to get an EIN.
Business start-up costs are the expenses you incur before you actually begin business operations. Your business start-up costs will depend on the type of business you are starting. They may include costs for advertising, travel, surveys, and training. These costs are capital expenses.
You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation. Other qualifying start-up costs can be recovered through amortization. This means you deduct them in equal amounts over a period of 60 months (or more).
If you do not choose to amortize these start-up costs, you generally cannot recover them until you sell or otherwise go out of business.
For more information on business start-up costs, see Publication 535, chapter 9.
I am no tax attorney, but my reading has led me to the same conclusion as the previous poster.
Start-up costs are capitalized expenses, and therefore amortized over a period of time.
I have also read that some businesses get around this loophole by selling products/services to family and friends early on to generate revenue and THEN pruchasing office supplies, stationary, etc. Since the business is already making money, they are no longer capitalized. Not sure how you could do something like that in REI, but the name of the group is CREATIVE investor!
"Start-up costs are capitalized expenses, and therefore amortized over a period of time."
I would say depends on what the expenses are: For example, if you purchased the computer, yes, but if you spent the money on gas or telephone calls and advertising, those expenses can be deducted the same year, as far as I know.
omega1 is correct.
Daily expenses can be claimed the same year in total. However, investments in the form of long term gains has to be spread over a certain period of time.
Personal opinions aside, what counts is what constitutes a startup cost in the eyes of the IRS. Rather than just guessing, check out an authoritative source -- see IRS Publication 535, chapter 9.
[ Edited by DaveT on Date 01/23/2004 ]