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Withholding refers to the money that an employer deducts from an employee's gross wages and pays directly to the government.

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Small Business: Deducting Startup Costs

If you've recently started a business - or are thinking about starting a business - you should know that as an owner, all eligible costs incurred before you began operating the business are treated as capital expenditures. As such, they are part of the cost basis for the business.

Generally, the business can recover costs for assets through depreciation deductions. Businesses with costs paid or incurred after September 8, 2008, can deduct a limited amount of start-up and organizational costs enabling business owners to recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.

Business Start-up Costs
Start-up costs are amounts the business paid or incurred for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for-profit and to produce income in anticipation of the activity becoming an active trade or business.

Examples of start-up costs include amounts paid for the following:

An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
Advertisements for the opening of the business.
Salaries and wages for employees who are being trained and their instructors.
Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
Salaries and fees for executives, consultants, or similar professional services.
Qualifying Costs
A start-up cost is recoverable if it meets both of the following requirements:

It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business in the same field as the one entered into by the business.
It's a cost a business pays or incurs before the day their active trade or business begins.
Nonqualifying Costs
Start-up costs don't include deductible interest, taxes, or research and experimental costs.

Purchasing an Active Trade or Business

Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are considered capital expenses and cannot be amortized.

Disposition of business
If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business.

Questions about deducting start-up costs for your small business? Help is just a phone call away.

Taxable vs. Nontaxable Income

Are you wondering if there's a hard and fast rule about what income is taxable and what income is not? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there's more to it than that.

Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income
Here are some types of income that are usually not taxable:

--Gifts and inheritances
--Child support payments
--Welfare benefits
--Damage awards for physical injury or sickness
--Cash rebates from a dealer or manufacturer for an item you buy
--Reimbursements for qualified adoption expenses

In addition, some types of income are not taxable except under certain conditions, including:

--Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.

--Income from a qualified scholarship is normally not taxable; that is, amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts used for room and board are taxable.

If you received a state or local income tax refund, the amount might be taxable. You should have received a 2022 Form 1099-G from the agency that made the payment to you. If you didn't get it by mail, the agency might have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.