Start up costs

[Bees Knees]

However, remember using 179 in 2010 will reduce income taxes but not S/E. Maybe better to depreciate to reduce future S/E tax.

This brings up an interesting planning idea. SE tax is reduced by 2% in 2011. Thus, any major purchase in 2011 will produce less of a tax savings than something in 2012.

For example, a $100,000 purchase of heavy construction equipment will save $13,300 in SE tax in 2011 if Section 179 is taken. That same purchase in 2012 will save $15,300 in SE tax.

Is it worth depreciating major 2011 purchases and spreading out the deduction over serveral years verses taking 179 in order to save more in SE tax?

[RNuse09]

Thanks for everyones input. I am going to take the section 179 in 2010. I would rather do that than to have to amoritize them as start up costs. Just starting the business I could use the cash. Can I use section 179 even though I purchased the items before the business was open. Or do I have to say I was open when I purchased the items.

[Bees Knees]

I am assuming you made the purchases prior to 12/1/10. If so you have start up expenses. I don't know how one handles capital assets as start up expenses but I assume they can be deducted if you meet the requirements for deducting and not capitalizing start up expenses.

I disagree. Section 179 is taken on the date you place the asset into service. Thus, even if the asset was purchased prior to 12/1/2010, the Section 179 deduction would be taken on 12/1/2010, the date the business placed it into service (since it is the date the business started).

[Gretel]

Bonus

To avoid the SE tax problem you could take 100% bonus depreciation if all assets were bought after 9/8/10 and all were new.

[AZ-Tax]

New business no income no deduction...NOT

I'm running the business as a sole prop. I did start the business on 12/1/10, I just haven't had a customer yet. I think that having a fully furnished office and sign would constitute that the business has started.

I cannot believe how many new tax clients I get that started a business the tax year before I met them or 2 tax yrs ago and not deducting their bus related exps due to being under the impression "if I make no money, I am not allowed any bus related deductions". Some I could amend as they dug up their bus related exps while others just didnt want to go thru the hassle.

Lessson: Consult your Tax Preparer while your business idea is still in your mind.

[JG EA]

Since you have a full time job consider if you may want some of those expenses in the coming years by depreciating your assets.

[Kram BergGold]

Whoa

I am assuming you made the purchases prior to 12/1/10. If so you have start up expenses. I don't know how one handles capital assets as start up expenses but I assume they can be deducted if you meet the requirements for deducting and not capitalizing start up expenses. Your other option is to say you were open for business earlier than 12/1 and then proceed by taking section 179. However, remember using 179 in 2010 will reduce income taxes but not S/E. Maybe better to depreciate to reduce future S/E tax.

[MariaR08]

Agree as well. The mere fact that you have not had a "paying customer" yet doesn't mean you're not "in business"

[ChEAr$]

I'm running the business as a sole prop. I did start the business on 12/1/10, I just haven't had a customer yet. I think that having a fully furnished office and sign would constitute that the business has started.

Agree, per my first comments above.

[RNuse09]

I'm running the business as a sole prop. I did start the business on 12/1/10, I just haven't had a customer yet. I think that having a fully furnished office and sign would constitute that the business has started.

[ChEAr$]

Also we are assuming that OP is operating business as a proprietorship and not as a corporation, C or S.

[Bees Knees]

If you have W-2 income from a day job that exceeds the amount of purchases you made to start your business, you can deduct the full amount of business purchases under Section 179 for 2010, including the furniture. This assumes you actually started the business in 2010. Even if you did not start the business until 2011, you can deduct up to $10,000 in business start-up costs for 2010. Thus, under either scenario, you can deduct all of your costs in 2010.

[appelman]

You need business earnings (or wages) to take advantage of the 179.

Otherwise, you could take it on the 4562, but you would have to carry it forward until you did have earned income to offset it.

[RNuse09]

I have a day job

Thanks Cheryl,

I also have a regular 9-5 job as well. I'm not sure why this would matter though, could you explain? I think I can take the 179, even though there is no income from the business this year.

Thanks,

[ChEAr$]

Initial expenditures

Hello,

I just started my tax preperation business on 12/1/10. That is the date my sign went up. I purchased a computer, pro series, quickbooks, and office furniture in 2010. When I filed for the EIN stated the business would start in Sept of 2010. I am sure I am not the first person that it has taken longer than anticipated to start a business. I feel I am entitled to section 179 the computer and software which will be in upwards of 4,000. What scares me is that the business has generated no income in 2010. Am I correct that I am entitled to this large refund. I do know that I cannot section 179 the office furniture. THanks in advance for any replies.

When I started back in November 1974 I faced same scenario.
Except back then there was no computer. Had business license and by end of year office was set up and open for business. Advertising was in place. IF a potential client had stopped by I was ready, willing and able to at least furnish tax planning; even to prepare a return last week of the year.

Therefore section 179 could have been used (did we have 179 back then?) since I also had other earned income from a salary.

So, why can't furniture be subject to 179 today?