IRS issues final rules relating to election to deduct business startup expenses

The IRS has issued final regulations relating to elections to deduct start-up expenditures, organizational expenditures of corporations, and organizational expenses of partnerships.

The regulations, issued Tuesday, come as a result of amendments made to the American Jobs Creation Act of 2004, allowing limited deductions of these types of expenses paid or incurred after Oct. 22, 2004. The new regulations provide guidance on how to make the deductions properly.

According to the rules, a taxpayer can deduct “an amount equal to the lesser of (1) the amount of the start-up or organizational expenditures that relate to the active trade or business, or (2) $5,000, reduced (but not below zero) by the amount by which the start-up expenditures exceed $50,000.” The rules go on to say, “The remainder of the start-up expenditures is deductible ratably over the 180-month period beginning with the month in which the active trade or business begins.” Similar rules apply to corporations or partnerships.

For full guidance, including several examples on how to apply the rules, go to www.ofr.gov/OFRUpload/OFRData/2011-20872_PI.pdf.
 

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