The American Jobs Creation act of 2004 determines the rules for start-up expenses for businesses. Here are the basics to know in order to get back your start-up expenses as soon as possible.
Taxpayers can elect to deduct up to $5,000 of start-up expenditures in the tax year in which their trade or business begins. The $5,000 amount must be reduced (but not below zero) by the amount by which the start-up expenditures exceed $50,000. The remainder of any start-up expenditures, those that are not deductible in the year in which the trade or business begins, must be ratably amortized over the 180-month period (15 years) beginning with the month in which the active trade or business begins.
Partnerships may also elect to deduct up to $5,000 of their organizational expenditures, reduced by the amount by which such expenditures exceed $50,000, for the tax year in which the partnership begins business. The remainder of any organizational expenses can be deducted ratably over the 180-month period beginning with the month in which the partnership begins business.
This provision benefits smaller businesses that have around $5,000 of start-up or organizational expenditures. Larger start-ups, however, are required to amortize most or all of these expenses over 15 years.