How to Calculate Startup Costs

Business costs go on an IRS Schedule C form for sole proprietorships.

Start-up costs are costs associated with starting your business before the business actually begins operation and creating revenue. This is a very important concept in tax law. In tax law, start up-costs are not a deductible expense like most costs are for a business. Instead, your start-up costs need to be amortized over several years. This means you only get part of the deduction each year. Once you determine your start-up costs, you can figure your other expenses to take a full deduction on them.

Things You'll Need

• Receipts

Instructions

1. Gather all your expense receipts from your business.

2. Determine the day you first went into business. This would include when you opened for business.

3. Separate all receipts from before the day you opened for business from ones after you opened for business.

4. Remove any receipts for deductible interest, taxes, or research costs from your pile of "before" business receipts. These can be deducted immediately. However, most expenses must be amortized, usually over 180 months. These include costs for hiring and training employees, pre-opening advertising, travel to meet with suppliers and the like.

5. Add together the remaining receipt totals from before you started business.

References

• IRS: Publication 535