Saturday, December 15, 2007

Up to $5,000 of Start Up Costs Can Now be Deducted

This article was written by Dick Ginnaty, CPA

Start up costs are costs incurred prior to actively operating a business and include such activities as analysis of potential markets or products, travel or other costs to secure prospective distributors, suppliers or customers, and includes professional fees incurred to form a corporation, partnership or limited liability company.

Historically these costs were capitalized and either not deductible until the business ended or were written off over a 60 month period, 1/60 of the cost per month. Under current law if the starts up costs are less than $50,000 then $5,000 can be written off immediately. Any remaining costs are written off under the old rules, 1/60th of the costs each month for 60 months.

Start up costs for purchasing an existing business are also subject to the fast write off rules but they include only the investigative costs incurred in the course of the search.

Costs of issuing and selling stock or costs of transferring assets to a corporation are not included in start up costs for this purpose. Nor are syndication fees, or costs of making a contract between a partnership (or LLC) and the partners regarding operation of the business.

Good luck and here’s hoping it “all adds up” for you.

(If there is any area in accounting or tax that you think needs to be addressed in this newsletter please e-mail Dick at and if it is of general interest, he will address it in future articles).