Question

1. You are a calendar-year corporation who started operations on October 1, 2015. You determine your start-up costs to total $63,000 and your organizational expenses total $35,000.
   1. How much can you deduct for start-up costs on your initial tax return?
   2. How much can you deduct for organizational expenses on your initial tax return?

Answer 1

As per the IRS, Start up cost and organisational cost are eligible for deduction in the initial year in which the operation commences as in the manner stated below and the balance amount is amortized over the next 15 years.

Deduction in the initial year:

If you spent less than $50,000, you are eligible to deduct $5,000 in the initial year in which business commences.

If the expense exceeds $50,000, your eligible deduction in the initial year decreases by the amount that exceeds $50,000 i.e if the expense exceeds $55,000 your eligible deduction in the initial year will be nil.

With respect to the above provision:

a. Deduction for startup cost in initial tax return is nil

since the start up cost exceeds $55,000 there will not be any deduction for startup cost in the initial year.

b. Deduction available for organisational cost in initial tax return = $5,000

since the organisational cost does not excees $50,000, an amount of $5,000 is available as deduction in the initial year.

Balance amount of start up cost and organisational expense can be amortised in the next 15 years.