𝗧𝗿𝘂𝗲 𝘀𝘁𝗼𝗿𝘆: Two business owners jumped into a new venture, spent over $𝟰𝟬,𝟬𝟬𝟬 on education and setup costs, and tried to deduct it all in their first year.

The IRS disallowed every dollar.

Why? Because the court said their business hadn’t 𝘢𝘤𝘵𝘶𝘢𝘭𝘭𝘺 𝘴𝘵𝘢𝘳𝘵𝘦𝘥 yet.

𝘒𝘸𝘢𝘬𝘶 𝘌𝘢𝘴𝘰𝘯 𝘢𝘯𝘥 𝘈𝘴𝘩𝘭𝘦𝘺 𝘓. 𝘓𝘦𝘪𝘴𝘯𝘦𝘳 𝘷. 𝘊𝘰𝘮𝘮𝘪𝘴𝘴𝘪𝘰𝘯𝘦𝘳, 𝘛.𝘊. 𝘚𝘶𝘮𝘮𝘢𝘳𝘺 𝘖𝘱𝘪𝘯𝘪𝘰𝘯 2024-17 (𝘜.𝘚. 𝘛𝘢𝘹 𝘊𝘰𝘶𝘳𝘵, 2024)

Here’s what that means for a new construction business 👇

🔹 𝗬𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 “𝘀𝘁𝗮𝗿𝘁𝘀” 𝘄𝗵𝗲𝗻 𝘆𝗼𝘂 𝗯𝗲𝗴𝗶𝗻 𝗼𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀, 𝗻𝗼𝘁 𝘄𝗵𝗲𝗻 𝘆𝗼𝘂 𝘀𝘁𝗮𝗿𝘁 𝗽𝗹𝗮𝗻𝗻𝗶𝗻𝗴.

Training, buying tools, setting up your LLC.

Those are pre-start activities.

But once you start marketing, bidding jobs, signing contracts, or delivering work, that’s when the IRS says you’re “in business.”

🔹 𝗧𝗿𝗮𝗰𝗸 𝘆𝗼𝘂𝗿 𝘁𝗶𝗺𝗲𝗹𝗶𝗻𝗲 𝗰𝗮𝗿𝗲𝗳𝘂𝗹𝗹𝘆.

Keep documentation of when you began taking on clients, making sales, or doing work, those details matter if the IRS ever asks.

🔹 𝗣𝗿𝗲-𝘀𝘁𝗮𝗿𝘁 𝗰𝗼𝘀𝘁𝘀 𝗮𝗿𝗲𝗻’𝘁 𝗹𝗼𝘀𝘁, 𝗯𝘂𝘁 𝘁𝗵𝗲𝘆’𝗿𝗲 𝗹𝗶𝗺𝗶𝘁𝗲𝗱.

You can usually deduct up to $𝟱,𝟬𝟬𝟬 𝗶𝗻 𝘀𝘁𝗮𝗿𝘁-𝘂𝗽 𝗲𝘅𝗽𝗲𝗻𝘀𝗲𝘀 in your first year, then amortize the rest over 15 years.

If you’re spinning up a new crew, launching a side company, or pivoting into development, timing your “start date” right can be the difference between a big deduction and a total disallowance.

Before you start writing checks, talk to your CPA about how to document and deduct every dollar asap.

Disclaimer: This content is provided for educational purposes only and is not legal, tax, accounting, or financial advice. Every situation is unique, so consult your own attorney, CPA, or financial advisor before making decisions based on this information.