Can I deduct my business start up costs?
I'm buyin inventory and stuff for my online boutique but I didn't open it yet. Can I deduct these costs off my taxes on schedule c ?5 months ago - 2 answers
GanChoSan is only partly right.
No, your inventory cannot be expensed until sold.
When you buy inventory, you are converting one asset (cash) for another (inventory). It is recorded as an expense (Cost of Goods Sold) when you sell the inventory.
For example, you buy 50 widgets for $20 each. You sell 20 at $50 each. Your Gross Revenue/Income is $$1000 (20x$50) and your CoGS is $400 (20x$20). You still own 30 widgets so you cannot expense them yet.
"but I didn't open it yet"
Other costs like signage (if a brick-and-mortad store), web design, etc are "Start Up Costs" and must be "Capitalized". That is, they are expensed over time - 15 years, in fact. And all expenses prior to actually conducting business are "start up".
Any major expense that you derive use from for more than 1 year is a "Capital Expense". You depreciate according to the life of the item. Furniture and Fixtures have a 7 year life (IRS rules) and computers have a 5 year life.
There is something calles "Sec 179 Deduction" which is an accelerated depreciation to help the small business recoup the expense faster.
Yes. Any legitimate business costs can be used on a schedule C, as long as your business is a sole proprietorship. Goods and other expenses acquired in 2012, are deductible in the year 2012. These costs reduce profits of the business. If more expenses than income, then there is a loss, enter on Form 1040 line 12 (in parentesis, to show a negative amount). This will reduce your total income, which, in turn, reduces your adjusted gross income. This will reduce your tax liability.
Good luck with your venture.