Taxes Made Simple

Alan (civil engineering consultant) asks:

Michael, I’m going to be starting a civil engineering consulting business soon. In order to operate the business effectively, I’ll have to spend approximately $6000 to buy some necessary software.  Can I buy the software before I start the business? Or do I have to wait?

Answer:

Hi Alan. As long as your total start-up costs (costs incurred prior to starting the business) are under $50,000, you will be allowed to deduct up to $5,000 in start-up costs on your first year’s Schedule C. You will have to deduct the remainder ($1,000 in this case) over a 15-year period.

Would it be possible to buy some of the software ahead of time, but not all of it? This way you won’t go over the $5,000 start-up cost deduction limit. Then, once the business is operating, purchase the other software, and it will be deductible as a regular operating expense.

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