If you've recently started a business, or if you're in the process of starting one now, you should be aware of a recent tax law change that could make a big difference in your tax bill. The recently enacted 2010 Small Business Jobs Act doubles the amount of start-up expenses that someone starting a business in 2010 can write off this year. Here are the details.

Generally, expenses incurred before a business begins don't generate any deductions or other current tax benefits. However, under pre-2010 Small Business Jobs Act law, taxpayers, whether they were individuals, corporations or partnerships, were permitted to elect to write off up to $5,000 of “start-up expenses” in the year business began, and the rest could be deducted over a period of 180 months. The $5,000 figure was reduced by the excess of total start-up costs over $50,000. You were deemed to have made this election unless you opted out.

The new law doubles the amount that can be written off for 2010 to $10,000 and increases the phaseout threshold from $50,000 to $60,000. It is important to note that this increased deduction is temporary, and only applies to tax years beginning in 2010.

Start-up expenses include, with a few exceptions, all expenses incurred to investigate the creation or acquisition of a business, to actually create the business, or to engage in a for-profit activity in anticipation of that activity becoming an active business. To be eligible for the election, an expense also must be one that would be deductible if it were incurred after the business actually began. An example of a startup expense is the cost of analyzing the potential market for a new product.

As you can see, it's important to keep a record of these start-up expenses, and to make the appropriate decision regarding the write-off election. As mentioned above, if you opt out of the election, there is no current tax benefit derived for the eligible expenses covered by the election. Also, you should be aware that an election either to deduct or to amortize start-up expenditures, once made, is irrevocable.

We hope this information is helpful. If you would like more details about any aspect of the new legislation, please do not hesitate to contact us.