Tax Court Says This is What You Need to Do NOW With Your New Business | USTaxAid

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Tax Court Says This is What You Need to Do NOW With Your New Business

Written by Diane Kennedy, CPA on July 29, 2022

The IRS says you can’t take a business deduction for your business until you start your business. That’s why it’s important to know when your business actually starts.

A business has begun to function as a going concern when it has performed those activities for which it was organized. In 1995, the Tax Court said that a business could be considered to have begun even if there are no sales and zero gross receipts, as long as it is ready to sell.

Start-up expenses must be capitalized until the business begins. Once it’s begun, the taxpayer can take a startup expense for up to $5,000 and then amortize the rest over 15 years (180 months).

A start-up expense is defined as an amount paid in connection with the business in anticipation of this becoming an active trade or business. It can’t be training or education so you can run this business, but normally includes expenses like legal, accounting, programming and physical plant items that are needed for the business.

That’s the background on start-up expenses. You can start getting a deduction when you start. But when do you start?

In the recent case of Kellett, his internet business started when he opened his website up to the public. He had goods for sale. And he didn’t make a single sale.

Still, the Tax Court said that he had begun his business and that meant he started to get deductions. 

Got a new business idea? Get it started before year-end to get the tax breaks.

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