Taxpayers who pay or incur start up costs and who subsequently enter the trade or business can elect to expense up to $5,000.
DOLLAR FOR DOLLAR REDUCTION WHERE COSTS EXCEED $50,000
This $5,000 deduction amount is reduced dollar for dollar when the start up expenses exceed $50,000.
BALANCE OF START UP EXPENSES MUST BE AMORTIZED
The balance of the start up expenses, if any, are to be amortized over a period not less than 180 months, starting with the month in which the business begins.
DEADLINE FOR MAKING ELECTION
The balance of the start up expenses, if any, are to be amortized over a period not less than 180 months, starting with the month in which the business begins. The election must be made no later than the date (including extensions) for filing the return for the tax year in which the business begins or is acquired.
MAKING THE ELECTION
The election is made by completing Part VI of Form 4562, Depreciation and Amortization. A taxpayer who does not make the election must capitalize these start up expenses.
EXPENSES THAT QUALIFY
To qualify under this election, the expense must be paid or incurred in connection with (1) investigating the creation or aquisition of an active trade or business, (2) creating an active trade or business, or (3) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of that activity becoming an active trade or business. In addition, the expense must be a cost that would be allowable as a deduction if it were paid or incurred in connection with an existing active business in the same field as that entered into by the taxpayer.
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