Federal Tax

Start-Up Expenditures (Portfolio 534)

  • The Portfolio, Start-Up Expenditures, analyzes in-depth the tax treatment of start-up expenses under §195 of the Internal Revenue Code of 1986.

Description

Bloomberg Tax Portfolio, Start-Up Expenditures, No. 534, analyzes in depth the tax treatment of start-up expenses under §195 of the Internal Revenue Code of 1986. Generally, for expenditures incurred after October 22, 2004, a limited current deduction is allowed for start-up expenditures. Amounts not deducted are amortized over a 180-month period. For expenditures incurred on or before October 22, 2004, no deduction is allowable for start-up expenditures, but taxpayers may elect to amortize such costs over a period of not less than 60 months.

A start-up expenditure is defined as any amount: (A) paid or incurred in connection with (i) investigating the creation or acquisition of an active trade or business, (ii) actually creating an active trade or business, or (iii) engaging in an activity for the production of income in anticipation of becoming an active trade or business; and (B) which, if incurred in connection with the operation of an existing trade or business, would be allowable as a deduction for the taxable year in which paid or incurred. Start-up expenses do not include any amount allowable as a deduction under §163(a), §164, or §174.

This Portfolio discusses central issues concerning start-up expenses, including determining when a trade or business begins for purposes of §195, distinguishing the commencement of a new trade or business from the expansion of an existing one, applying §195 to partnerships and subsidiaries, determining which expenses are treated as start-up expenses, and the mechanics of making the §195 election in regards to start-up expenses (which election is now deemed absent an affirmative election to capitalize).

Table of Contents

I. Treatment of Start-Up Expenses Before Enactment of § 195
II. The General Rules Governing Start-Up Expenses After 1980-The Birth of § 195
III. Determining When a Business Begins
IV. Expansion of an Existing Trade or Business
V. Affiliated Entities and § 195
VI. Determining Which Expenditures Are Treated as Start-Up Expenses
VII. Mechanics of the § 195 Election

Todd_Maynes
Todd Maynes
Partner
Kirkland & Ellis LLP
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