IRS Issues Rules for Deducting Startup Expenses

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The Internal Revenue Service on Tuesday issued final regulations on how taxpayers can deduct up to $5,000 in startup expenses in the years they begin active trades or businesses. The new rules also provide guidance on how taxpayers can elect to capitalize, rather than deduct, such expenses.

The rules provide guidance on the application of section 902 of the American Jobs Creation Act of 2004, which amended IRC §§ 195(b), 248(a) and 709(b) to allow taxpayers to deduct up to $5,000 of startup expenses or organizational expenditures by making an election.  The remainder of the start-up or organizational expenses are generally amortized over 15 years.  The deductible amount is reduced by the amount by which startup or organizational expenditures exceed $50,000.

The final regulations provide the time and manner of making the election, and can be found here.

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