I'm a single, young engineer in CA making 100k/year and paying approximately 35k income tax per year. I'm planning to start a side business next january, and setting up the business has been consuming a huge chunk of my income. Is there anyway I can reduce the 35k yearly income tax? I'm investing around 30k at my business already, so my taxable income should be less? Thank you in advance for your help and I look forward to your reply!
Yes, you should be able to deduct at least some of these expenses. For expense incurred before you started the business:
What Are Deductible Startup Costs?
The IRS defines “startup costs” as deductible capital expenses that are used to pay for:
1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures.
2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers.
These expenses can only be claimed if your research and preparation ends with the formation of a successful business. The IRS has more information on how to claim the expenses if you don’t go into business.
Once your business is underway, you can deduct expenses, but the exact details depend on how you organized. If you're a sole proprietor for tax purposes, then you'll deduct them on Schedule C of your Form 1040 on your personal tax. If you are a partnership, C-Corp, or S-Corp, they will be accounted at the business level and either passed on to you on a Schedule K (partnership and S-Corp) or deducted directly by the company (C-Corp).
In any case, you will need good records that justify your expenses as business related.
It might be well worth at least an initial meeting with a CPA to make sure that you get started on the right foot.