If your client just set up their startup business, they might not want to try to write off the costs and forget about it. As Ken Berry points out, a new Tax Court case makes the IRS’s opinion of this move very clear.

The tax law provides a faster-than-usual write-off for costs associated with starting a business venture, but it’s not a gimme. As shown in a new case, Harrison, TC Sum. Op. 2022-6. 5/12/22, you must be able to demonstrate that you’re completely open for business, whether or not you earned any revenue from the operation.  

Generally speaking, a business is required to amortize start-up costs over a period of 180 months. However, you can write off up to $5,000 of qualified start-up costs that would otherwise be deductible as “ordinary and necessary” business expenses when the business is ready to accept customers or clients. 

If the business exceeds the $5,000 limit for start-up costs, the excess must be amortized over 180 months. Also, the $5,000 write-off is phased out on a dollar-for-dollar basis for costs above $50,000. In other words, no current deduction is allowed if start-up costs exceed $55,000. 

The IRS often challenges the fast write-off for start-up costs for a business venture that is just getting off the ground or is in an exploratory stage. 

Facts of the new case: The taxpayer, a resident of New York and a full-time employee at Samsung Electronics, expressed interest in launching a corporate strategy consulting business in 2015. To help build her brand, she contracted with a company that set up a website through which she published assessments about technology trends and developments. She also paid the company to host the website on a server.

In addition, the taxpayer purchased several website domains that had similar-sounding names so she could redirect patrons to her website. To further the development of her brand, she began networking and participated in speaking engagements during the year in issue. She traveled for at least two clients, in Buffalo, New York, and Ohio, and spoke at a conference in Atlanta, Georgia.