Getting organized

Ah, January. A new month, a new year, a time when some of us are getting organized for the year ahead. What if one of the things you’re organizing is a brand new business? First, congrats! Second, keep careful track of all of your organizational and start-up costs so that they can be appropriately accounted for on your taxes. Here’s the skinny: business start up costs include costs paid in connection with creating (or acquiring) a business, such as analysis of potential markets, advertising said new business, training employees, securing distributors, etc. Organizational costs include the costs of establishing the business’ legal entity and include costs such as organizational meetings, temporary directors, state incorporation and legal services. 

In general you don’t deduct these start-up and organizational costs the way you deduct other business expenses on your taxes. Instead, you may elect to deduct up to just $5k of of start-up costs and $5k of organizational costs as an expense in the first tax year. Any remaining costs over and above the $5k in each category are amortized over a 180-month period, beginning with the initial month of operation. As an exception -- because these are taxes we’re dealing with, of course there’s an exception -- if you spend over $50k total in either category, the initial $5k deduction is reduced by $1 for every dollar over $50k (up to $55k, at which point the initial deduction is reduced to zero (see? Taxes are fun!)), but you can still amortize all of your organizational and start-up costs over the 15-year period.

Now, go out there and get organized!