Is Research for a New Business Tax Deductible?

Is Research for a New Business Tax Deductible? As people explore ways to escape their financial predicaments, lots of people are asking such questions.

Steve Kroening answers:

“I have a question about starting a business in Michigan where the economy for employment has taken a drastic turn. Do you know if the research and development of a business is a tax deductible expense and can you elaborate on that for me?”

We turned to our colleague Dr. Wayne Essex, president of the full-service accounting firm Essex & Associates, for the answer.

Dr. Essex said, “Yes, research expenses are deductible up to a maximum $5,000 in the start-up year. The $5,000 is deductible even if the business idea does not come to fruition. The expense would be taken on a Schedule C, Profit and Loss from Business, and then transferred to the front page of the 1040.

“This research expense could also be delayed until the new business has revenue and then offset against those sales. This $5,000 expense will also lower the state tax of Michigan. Michigan uses the Adjusted Gross Income on the federal return. You’ll want to check with an accountant for details in other states.”

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