Business Standard Deduction

Today TaxMama hears from Marty in Wisconsin who is upset with her tax pro, “Is there a standard deduction of $,5000.00 for the first year that you open a small business? I was told there was and know someone who used it. My accountant will not redo my taxes or tell me if this deduction is for real. The person who used this $5,000 and I have the same tax accountant.”

Hi Martha

[Chuckle] I can see where you might get that impression, but, no. There is no standard deduction for new small businesses.

You’re talking about the right to write off up to $5,000 worth of start-up expenses and up to $5,000 worth of organizational expenses during the business’s first year of operation.

First of all, there is no deduction unless you actually SPEND the $5,000.

Let me explain how this does work, OK?

Before this provision was passed a couple of years ago, if a business spent money on start-up and organizational costs, they had to write the costs off over 5 years. In other words, each year, they could only deduct 1/5 of the total spent.

But for all business start-up and organizational costs incurred after October 24, 2004, IRS is giving you a break – and making things a little worse.

Instead of having to spread the costs over 5 years, you’re allowed to write off the first $5,000 of start-up and organizational costs, in the first year the business starts to earn money.

The making things worse part is – the rest of the costs get written off over 15 years instead of 5.

You can read more about this in our earlier discussions about start-up costs.

Good try, though. I like it! Trust your accountant. S/he gets it!

And remember, you can find answers to all kinds of questions about business expenses and all kinds of other tax issues, free. Where? Where else? At

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