Final Rules for Deducting Start-Up and Organization Costs

9/1/2011

By Mark Corey, CPA

As the corporate tax filing period for 2010 winds down, the IRS has issued final regulations on the election to deduct start-up expenses under Code Sec. 195 and corporate organization expenses under Code Sec. 248.

The American Jobs Creation Act of 2004 changed the treatment of start-up and organizational expenses paid or incurred after Oct. 22, 2004, and allowed taxpayers to elect to deduct up to $5,000 of start-up and organization costs. Any excess costs had to be amortized over 180 months.

After passage of The American Jobs Creation Act of 2004, Section 195(b) allowed a taxpayer to deduct up to $5,000 of start-up costs of an active trade or business reduced dollar for dollar by start-up costs in excess of $50,000. The Creating Small Business Jobs Act of 2010 increased the deduction for start-up costs from $5,000 to $10,000 for tax years starting in 2010. The phase-out threshold was increased to $60,000 so the $10,000 was reduced dollar for dollar by the amount by which the start-up costs exceeded $60,000. If the organization has $70,000 or more in start-up costs it will have to amortize all of those costs over 180 months.

Similarly, code section 248(a) allows a corporation to deduct up to $5,000 in organizational costs for the year they begin business. This deduction is reduced dollar for dollar by costs in excess of $50,000. These limits were not changed by the The Creating Small Business Jobs Act of 2010.