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Ask HN: Investing in own startup counts as business expense?

6 points by DiaHacker ↗ HN
I am starting a company - do not expect any revenues this year, but will be spending my money. Can I count it as a business expense (I have some income from other sources) or should I incorporate right away and call it a loan?

3 comments

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kls
My understanding is that under an S-Corp that yes you can write off expenses paid by your personal account as a business expense. You need to see a CPA though so that you are on the right path, they save you a lot of money by identifying strategies you can use to cover purchases as tax deductible. A CPA is a cost you can not afford to not afford.
grellas
Very general guidelines (see a CPA for precise guidance):

Under technical IRS rules, you need to be "in business" in order to be able to deduct your business-related expenses. That means it can't just a hobby. It also means that you can't just be doing preparatory steps to start the business (expenses incurred in preparing to start, even including incorporation expenses, are normally classified as "startup expenses" and are not deductable, though you can elect to amortize them over a 5-year period once you do start).

Assuming that you are in fact "in business," and that you have already started, you can deduct away regardless of whether you have any current revenues. With a proper S election for a corporation, or with an LLC, you can even pass through the losses (to the extent of your tax basis only) and offset them against other income you may be earning.

Again, check with a CPA for details.

Hope this helps.