Tax Blog

Start-Up Small Business – Part 7 – (What if I fail?)


If your attempt to go into business is unsuccessful. If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories.

The costs you had before making a decision to acquire or begin a specific business. These costs are personal and nondeductible. They include any costs incurred during a general

  • search for, or preliminary investigation of, a business or investment possibility.

  • The costs you had in your attempt to acquire or begin a specific business. These costs are capital expenses and you can deduct them as a capital loss.

If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss.

The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. You cannot take a deduction for these costs. You will recover the costs of these assets when you dispose of them.

The take away if failure does occur is to not give up, you have exposed and learned valuable lessons in what works and what did not work. Apply those lessons to the next idea and maybe you will have the next large business grown in your home and taken into the market. The American Dream is about ingenuity and advancing yourself in the free market waiting there for you to take hold of and make it your own reality.

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