They may be treated as deductible/amortizable startup costs only if they would be currently deductible by an existing trade or business in the same field. These costs may relate to a category of businesses or to a particular business. They are the costs incurred in searching for and analyzing prospective businesses prior to making a final decision whether to acquire an existing business, create a new business, or forgo a business transaction altogether (Rev. 81- 150).Įxpenses of investigating the creation or acquisition of a trade or business are known as investigatory expenses. Expenditures that would have otherwise been capitalized, such as the costs associated with the construction of a capital asset, are not startup costs (Rev. To be a startup cost, the expenditure must have otherwise been deductible as an ordinary and necessary business expense under Sec. Startup costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and for the production of income in anticipation of the activity becoming an active trade or business. Startup costs are costs paid or incurred in connection with investigating the creation or acquisition of an active trade or business or creating an active trade or business. Active conduct of a trade or business generally occurs when the corporation has begun the conduct of operations for which it was organized (i.e., is in a position to begin generating revenue). 197 intangibles), beginning with the month in which the active trade or business begins (Sec.

The remaining startup costs can be deducted ratably over a 15- year period (consistent with the amortization period for Sec.

The $5,000 deduction is reduced dollar for dollar (but not below zero) by the cumulative amount of startup costs exceeding $50,000. A corporation can deduct up to $5,000 of business startup costs under Sec.

Incurred expenses example