I have a friend who is a computer programmer. He is trying to quit his field and start a new business. He has identified the business opportunity in smog check. Before he quits his job and starts the business, he is spending money on training, getting the certificate, traveling on site visit, etc.
The question is if he can deduct these expenses?
The answer is yes or no. It depends whether the business will start or not.
If the business can be started in the future, say in 2018, all the expenses incurred in 2016 and 2017 are treated as start up cost. He can then deduct in the year business starts , which is 2018.
The first $5,000 of these start up expenses can be written off in the year he starts the business as long as the total start up expense does not exceed $50,000. If the total startup expenses over this threshold, the first year deduction will be reduced dollar by dollar for the amount exceeded. The remaining portion will be amortized over 15 years.
In general, start up cost means expenses that would have been deducted if the business had started, but the expenses are actually incurred before the business starting date.
If the business has never started after these start up expenses, the bad news is he cannot deduct anything.
So my advice to him from the tax perspective is to start the business to claim the tax benefit of the expenses.
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