Start up costs and organizational costs

Start up costs and organizational costs are generally treated as capital expenditures. However you can elect to deduct up to $5000 of your business start up costs and $5000 of organizational costs paid or incurred after Oct 22 2004.

The $5000 deduction is reduced by the amount your start up or organizational costs exceed $50 000. Any remaining costs must be amortized over 180 months.

You elect to deduct the costs by claiming the deduction on your income tax return (filed by the due date including extensions) for which the active trade or business begins. However, if you timely filed your tax return without making the election, you can still claim the election by filing an amended tax return within 6 months of the due date of the returns (excluding extensions).

Clearly indicate the election on your amended tax return and write “Filed pursuant to section 301 9100-2″.

I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.

Please do not hesitate to contact me should you have any question.