Tax Deductions: A Reason to Start That Business Now

If you have been working on a small business idea, now is the time to get at least some revenue in the door. As part of the recently enacted Small Business Jobs Act of 2010, new business owners may be able to deduct up to $10,000 in start-up costs this year if they start their business before year-end.

"Starting a business" means having at least a few dollars of income before Dec. 31. So, do your best to get that business concept off the ground.

The startup deduction can be easy to miss as the Act, passed to help further stimulate the economy, is packed with numerous other benefits for small-business owners.

To understand how it works, consider this lemonade stand example. Let's assume you go out and buy ice, cups, lemonade mix, a table, chair, and even spend money to make a sign. Can you deduct those expenses this year? If you haven't sold any lemonade yet, the answer is surprisingly: no. You are only in start-up mode.

To be eligible for the write-off on all of those start-up expenses, you have to be "in business." This means you have to sell at least one cup of lemonade. You don't have to make a profit on your operation, but you have to have at least one sale.

At minimum, you must show at least $1 of revenue before Dec. 31, and then you may be able to take advantage of the tax break.

Of course, as with any tax strategy, discuss the details with your tax advisor. Meantime, get out there and sell some lemonade.

Mark J. Kohler, a certified public accountant,is a partner in the accounting firm Kohler & Eyre, and the law firm Kyler, Kohler, Ostermiller, & Sorensen LLP, specializing in business, estate and tax. He is based in Irvine, Calif. His book What Your CPA Won't Tell You will be available in March from Entrepreneur Press.