Hello There!,

Small business owners have many details to take care of when running their businesses. Two of these details are covered in this issue of the Mashburn Memo for Small Business. 

First, is how start-up expenses are taxed. Many of the expenses incurred by start-ups can’t be currently deducted on your tax return. If you’re starting or planning to launch a new business, read our blog post for three rules to keep in mind.

Second, is how to determine if your compensation is reasonable. Read our blog post for four steps you can take to make it more likely that the compensation you earn will be considered “reasonable,” and therefore deductible by your corporation.

As always, the Mashburn CPA team is here to be of assistance to you and your business. Contact us when we can be of service. 

Thank you.

Paul Mashburn, CPA

How Start-Up Expenses Are Taxed

There was a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly.

If you’re one of the entrepreneurs, you may not know how start-up expenses are taxed. In fact, many of the expenses incurred by start-ups can’t be currently deducted on your tax return. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.

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Determine If Your Compensation Is Reasonable

If you own an incorporated business, you need to determine if your compensation is reasonable. Any unreasonable portion isn’t deductible and, if paid to a shareholder, may be taxed as if it were a dividend.

Keep in mind that the IRS is generally more interested in unreasonable compensation payments made to someone “related” to a corporation, such as a shareholder-employee or a member of a shareholder’s family.

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