My answer to If I am using my earnings (W2 paycheck) to fund my own new separate legal business, what can I deduct …
Answer by Wray Rives:
If you are just at the tooling and prototyping stage in your business, you need to capitalize and amortize these initial cost to develop whatever it is you are going to sell. Once you actually are ready to start selling, then you can begin writing off these costs and deducting any normal and necessary business expenses to operate your separate business. If the expenses exceed your revenue, (which is common for a startup business) then those losses will generally offset your ordinary income from other sources and reduce your taxable income.
Note that you cannot continue operating at a loss indefinitely or you will be subject to rules that basically you must not be engaged in the business for the intent of making a profit.