You may have heard from other chiropractors or financial “experts” that startup costs are deductible. This is true, but also misleading. There are some restrictions on the types of expenses that can be deducted, and you will need to spread out these deductions over several years. We’ll attempt to straighten out the confusion, with the understanding that this is a general discussion and you’ll need to consult with your CPA or tax advisor about the specifics.

Startup expenses are considered a “capital” expense, which means they are your investment in your new practice. These expenses can include your costs for finding and creating your business before it begins operation. For example, allowable startup costs could include:

• Expenses associated with searching locations, including mileage, meals, and lodging;
• Expenses associated with discussions with banks, commercial real estate people;
• Marketing research;
• Preparing your business plan, including office supplies and binding costs;
• Training for yourself and potential employees, including books and publications;
• Consulting with advisors, such as a CPA or attorney, about practice startup or purchase;
• Pre-startup advertising and marketing activities.

The general rule for determining which startup costs are allowable: an expense is allowable if you could deduct if you were already in practice, and if you actually do start the practice. Since these costs are not incurred while you are in practice, they would not typically be considered as deductible business expenses, but, as we said, the IRS considers these costs to be incurred as part of your investment in your practice. This means that they can be amortized (spread out) over the first 60 months after you open the business, beginning with the date you open your doors.

For example, let’s say you spend $5,000 on startup costs, which means you would be able to deduct $1,000 in startup costs each fiscal (financial) year. If your fiscal year begins in January and you open November 1, you would only be able to deduct $166.67 for the first year you are in practice ($5,000 divided by 60 months x 2 months).

This is all very complicated, and we would urge you to do two things:

1. Keep records of ALL costs that might be considered “startup,” including phone call records, travel expenses (hotel, meal, airline, mileage), business plan preparation costs, and charges by advisors prior to startup.

2. Find a good CPA quickly and have him or her help you, so you can be sure you’re getting the maximum allowable deduction.

This article from Commerce Clearing House provides additional help: http://www.finance.cch.com/text/c60s15d215.asp.

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