What are organizational expenditures? How are they treated for tax purposes? What are start-up expenditures? How...

What are organizational expenditures? How are they treated for tax purposes? What are start-up expenditures? How are they treated for tax purposes?

Expert Solution

1.Before starting any business, both start up and organizational costs are incurred.

2.Organizational cost :

These are the costs for organising or facilitating a business in order that it runs ahead smoothly. Examples of organizationsl costs are : cost incurred on legal services, costs incurred in getting prepared MOA & AOA (Business Charter), arranging meetings etc. These costs are usually amortized for tax purposes. Normally these costs are amortized over a period of 5 years but it again depends on the laws prevailing in different countries. Sometimes, it may also happen that costs incurred are not so material & hence can be directly charged off to Profit and loss account.

3.Startup Costs :

These are the costs incurred with an idea of creating the business. They start from the very basic like planning, analysing, budgeting etc. For example: arranging for training of personnel, advertising about business etc. Even these costs can be amortized over a period of 5 years or over a reasonable period as the company may deem fit.

4. In tax laws of some country, for tax purposes, certain specific deductions are given. Like say for example, in a country where any such organisational or start up costs are incurred for around say 3 preceding years before starting business operations, they get full deduction of such costs in the first years ( except for a few items ).

ekkarill92 answered 2 years ago

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