New Business Deductions

Many entrepreneurs and corporations don't take advantage of potential deductions for the time and resources spent investigating a new business.

Obviously, there are travel expenses as principals visit a business they're considering purchasing and talk with clients and partners. But there also are other expenses that relate to the business after it has been purchased. In fact, major costs of investigating a new business can be amortized for up to 60 months. This is true either for a business acquired from someone else or a new business created from scratch. This includes things like market segment exploration, product development, labor force development, fees and salaries for consultants and attorneys, and other sizable expenses. Keep this in mind if you find an opportunity for your company to grow.

Exploring those opportunities may not cost as much as it might seem. Uncle Sam will help you open the door when opportunity knocks. What if It All Falls Through? Even the best-laid plans sometimes go awry, even when they involve considerable time and money—or often simply because the time and money are too considerable for the potential benefits.

If your firm has gone through all the effort with due diligence and taken the allowed amortized deduction, chances are you'll wind up the proud owner of that new business.

But if those best-laid plans fall through, the expenses can be deducted as a capital loss. Your company still gets its deduction, as well as the opportunity to consider lessons learned along the way. Amortize Organizational Costs If you're developing either a partnership or a corporation, those costs also may be amortized over a 60month period. That allows you to spread out the tax benefits of all those expenses, to better match them against your income.

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For a partnership, such expenses include legal fees for negotiating an agreement and fees for accounting, consulting, and management. But expenses linked to marketing or issuing shares, including the costs of producing a prospectus and of syndication, are not included. If you're forming a corporation, it's much the same. The cost of organizational meetings, incorporation fees, and accounting and legal fees qualify.

However, costs involved in selling stock or securities do not. There are other expenses that may not be amortized. These include loan interest, taxes, and research or experimental costs. You may be feeling overwhelmed by all these tax details. Again, we've touched upon them just to show you how many things should be considered when you're considering ways to help your company grow.

Remember: Professionals hire professionals. Just as you are paid for your training, experience, and judgment, you should not hesitate to pay a tax advisor or an attorney for that person's training, experience, and judgment.

• Hire a competent tax professional who has experience with your size and type of company.
• Income and expenses can be recorded and reported on either a cash or an accrual basis. Accrual accounting allows for better matching of income and expenses.
• In accrual basis accounting, income is taxed at the time it is earned and expenses are deducted at the time they are incurred.
• There are limitations, based on corporate size and structure, affecting firms wanting to use cash-based accounting.
• Cash transactions of $10,000 or more require completion of IRS Form 8300. • Schedule C tax forms, although subject to significant limitations, may be right for single entrepreneurs or independent salespeople.
• Take advantage of all professional deductions available to your company.

Understand and maximize deductions for developing new areas of business. This website will take an overview of business tax obligations and look for ways to get the most out of the situation. What follows should help most companies start getting smarter.