2022 Start Up Tax Deductions

Here are the three categories of start up tax deductions you should know about in 2022:

1. Early Research Costs
2. Pre-Launch Costs
3. Organizational Costs

The IRS allows you to deduct $5,000 in business startup costs and $5,000 in organizational costs, but only if your total startup costs are $50,000 or less. 

Let’s dive into each category in more detail.

2022 Start Up Tax Deductions: Early Research Costs

According to the IRS, you are allowed to deduct any expenses that go into the investigation process of a new business, or acquisition of an existing business or trade.

Examples of early business research costs include market research, surveying markets, analyzing products or labor supply, visiting potential business locations, or other.

2022 Start Up Tax Deductions: Pre-Launch Costs

When preparing the business for launch, you are going to run into many costs required simply to open the doors.

The IRS allows you to deduct these pre-launch costs, as long as they meet a few criteria.

Any costs you incur before opening your doors are included in this category, except equipment, which will have to be depreciated.

Example of expenses that fall into this category include employee training, travel expenses to locate suppliers and distributors, advertising expenses, and consultant fees (such as attorney or accountant fees).

2022 Start Up Tax Deductions: Organizational Expenses

Finally, the IRS allows you to deduct any costs that go into tangibly creating and/or organizing your business.

Examples of these costs include legal fees, accounting fees, state filing fees, salaries for temporary directors, and a few others.

For a comprehensive list of expenses you can deduct, we recommend getting in touch with an experienced start up accountant in your state for guidance. 

When Can I Take Start Up Tax Deductions?

While it’s usually best to claim the start up tax deductions we’ve mentioned in the year that the business officially opens, you can still file an amended return within 6 months of the return’s due date.

Are There Any Other Start Up Tax Deductions To Know About?

While the official start up business tax deductions fall into the three categories above, there are many other tax deductions that your business should be thinking about during its first few years of business.

These include general operating expenses such as utilities, home office expenses, travel & mileage costs, and others.

Additionally, there is a $250,000 tax credit that start ups can receive for research & development, even before your business is profitable.

We recommend working with an experienced start up accountant to help you maximize your tax savings as a start up. 

If you don’t currently have a start up accountant, you can book a complimentary consultation with our accountants any time.

We’re here to help!