Tax Deductions for Small Business Start-up Costs in Fourth Quarter

Thanks so much for the clear explanation! So just to make sure I understand correctly - I can take the full $5,000 deduction this year even though I'm only officially in business for like a month of 2023? And then the remaining $1,700 gets spread out over 15 years? Also, do these startup deductions apply even if I don't make any profit this year? I probably won't have much revenue until January.

Yes, you can take the full $5,000 deduction this tax year regardless of only being officially in business for a short time. What matters is that you actually started the business in 2023, not how many months you operated. For your second question, these startup cost deductions can create a loss on your business return. If you're a sole proprietor or single-member LLC, that loss can offset other income on your personal return. If you don't have other income to offset, the loss can potentially be carried forward to future tax years.

How does taxr.ai handle the difference between startup costs vs regular business expenses? My accountant says they're treated differently for tax purposes, but I'm confused about when something counts as "startup" vs just regular business spending.

Does this actually work for all business types? I've tried a couple tax apps before and they always seem to miss things specific to my construction business. Also wondering if it helps with quarterly estimated taxes which I always seem to mess up.

Taxr.ai makes the distinction really clear - basically startup costs are expenses before you're "open for business" and generating income, while regular business expenses happen after you're operational. The system actually guides you through categorizing each expense based on timing and type. It also flags items that could go either way so you can make the best choice. For construction businesses specifically, it absolutely works - it has specialized categories for contractor expenses, equipment depreciation options, and job costing. For quarterly taxes, it has a projection tool that estimates what you'll owe each quarter based on your current income and expenses, which has helped me avoid both underpayment penalties and overpayments.

Wait how does this actually work? Does it just call the IRS for you? Why would that be any faster than me calling directly? Seems like everyone gets stuck in the same phone queue no matter what.

Sorry but this sounds like total BS. There's no magical way to skip the IRS phone queue - they're understaffed and everyone has to wait. I've tried "priority" services before that claim to get you through faster and they never work. Sounds like you just got lucky with your call timing.

It doesn't just call for you - they use a system that navigates the IRS phone tree and stays on hold in your place, then calls you when an actual human agent is on the line. They basically have technology that deals with the wait time instead of you having to do it yourself. I was skeptical too, but the difference is their system stays connected even during high-volume times when regular callers might get the "due to high call volume, please try again later" message. They have some kind of priority connection method that keeps your place in line even during busy periods when normal calls get dropped.

Oh wow I hadn't even thought about mileage! I've definitely been driving all over meeting with potential clients and checking out wholesale suppliers. Is there a good app you recommend for tracking business miles? And do I need to separate startup miles vs regular business miles or are they treated the same for tax purposes?

I use MileIQ now and it's pretty good at automatically tracking trips. For tax purposes, there's no difference in the deduction rate between startup miles vs regular business miles - they both qualify for the same standard mileage rate. The only difference is how you categorize them on your tax forms. Just make sure you log the purpose of each trip and keep that record with your tax documents. The IRS can get picky about mileage deductions if you ever get audited. You'll want your startup miles listed with your other startup expenses, while regular business miles go with your regular business expenses.

Organization costs are specifically for the legal formation of your business entity (like incorporation fees, legal fees for creating your LLC, etc.) while startup costs are the actual business expenses before you open (like market research, advertising, employee training, etc.). They're treated similarly for tax purposes though - both allow up to $5k in first-year deductions with amounts over that amortized over 15 years. The main difference is just which line they go on in your tax forms.