Business Start-up Costs

Includes amounts paid or incurred for (1) creating an active trade or business, or (2)investigating the creation or acquisition of an active trade or business.

Qualifications:

1. A cost that could be deducted if paid or incurred to operate an existing active trade or business (in thesame fi eld as the one entered into), and
2. A cost paid or incurred before the day the active trade or business begins

Includes:

1. Analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
2. Advertisements for business opening
3. Salaries and wages for employees who are being trained and their instructors
4. Travel and other necessary costs for securing prospective distributors, suppliers, or customers
5. Salaries and fees for executives and consultants, or for similar professional services

Does not include deductible interest, taxes, or research and experimental costs.

Organizational costs

Qualifications:

Must meet all qualifications

1. For the creation of the corporation or the partnership
2. Chargeable to a capital account
3. Could be amortized over the life of the corporation or the partnership if the corporation or the partnership had a fixed life, and
4. Cost incurred:

• Corporation – Incurred before the end of the first tax year in which the corporation is in business. A corporation using the cash method of accounting can deduct organizational costs incurred within the first tax year, even if it does not pay them in that tax year.
• Partnership – Incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment.

Organizational costs include costs of temporary directors, organizational meetings, state fi ling fees, and legal and accounting fees for services incident to the incorporation of the corporation or organization of the partnership.

Does not include:

• Costs for issuing and selling stock, securities, or partnership interests, such as commissions, professionalfees, and printing costs (these costs are not deductible or amortizable)