Tom's Blog

Anya from our School of Tax Strategy asks the following question:

Q: Hi Tom, I have a question regarding my start-up costs. I purchased some training materials on CDs for QuickBooks as well as the QuickBooks software itself in Septemebr of 2008. I was still working for my employer at that time. I quit my job in November and earned my first check as a self-employed person in December of 2008. I did not start actively looking for new clients until March 2009. Can I deduct the sofware and the training CDs as Section 179 deduction on my 2008 taxes?

A: The answer to this question is, of course, dependent on some additional facts. So let me give you the basic rules and then you can decide how they work for you. You are correct that the software and education are start up costs. Up to $5,000 of start up costs can be deducted in the year you start business if you have total start up costs of less than $50,000 and you make the proper election on your tax return for the year you begin business. (Elections are one of the reasons that using a qualified tax preparer is essential when you have your own business or investments.)

Since you received income for your new business in 2008, it's pretty safe to assume that your business started in 2008. So it looks like you probably can deduct the software and educational materials as start up costs. You will also need to treat these expenditures as Section 179 expenditures and make the election to expense them.

For more on start up costs, including how to make the election, go to http://www.wealthstrategyuproducts.com and order our course on Start Up Expenditures.

Warmest regards,

Tom