What is Organizational and start-up costs?
In short
A new business can deduct up to $5,000 of organizational costs and $5,000 of start-up costs in its first year, each reduced dollar for dollar by the amount by which that type of cost exceeds $50,000. The rest is amortized over 180 months.
Key takeaways
- Organizational costs include legal fees for drafting the charter and state incorporation fees, but not costs of issuing stock.
- Start-up costs are costs of investigating or creating a business before it begins operating.
- The same rules apply to partnerships.
Example
Start-up costs of $53,000: the first-year deduction is $5,000 − $3,000 = $2,000, and $51,000 is amortized over 180 months.
Where it's tested
REG: C Corporation Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A corporation owns 30% of the stock of another domestic corporation and receives a $100,000 dividend. Ignoring the taxable income limitation, what is the dividends-received deduction?