Frequently Asked Questions
Who is eligible for the Election to Deduct Organizational Expenditures?
New corporations with expenditures incident to the creation of the corporation; the $5,000 is phased out if total costs exceed $50,000.
How does the Election to Deduct Organizational Expenditures work?
Corporations can elect to deduct up to $5,000 of organizational expenditures in the first year of business, with the remainder amortized over 180 months.
What law authorizes the Election to Deduct Organizational Expenditures?
The Election to Deduct Organizational Expenditures is authorized under IRC §248 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §248
Source: Internal Revenue Code, Title 26, United States Code
§ 248. Organizational expenditures(a) Election to deductIf a corporation elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenditures—(1) the corporation shall be allowed a deduction for the taxable year in which the corporation begins business in an amount equal to the lesser of—(A) the amount of organizational expenditures with respect to the taxpayer, or
(B) $5,000, reduced (but not below zero) by the amount by which such organizational expenditures exceed $50,000, and
(2) the remainder of such organizational expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the corporation begins business.
(b) Organizational expenditures definedThe term “organizational expenditures” means any expenditure which—(1) is incident to the creation of the corporation;
(2) is chargeable to capital account; and
(3) is of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.
(c) Time for and scope of electionThe election provided by subsection (a) may be made for any taxable year but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The period so elected shall be adhered to in computing the taxable income of the corporation for the taxable year for which the election is made and all subsequent taxable years.
(Aug. 16, 1954, ch. 736, 68A Stat. 76; Pub. L. 94–455, title XIX, §§ 1901(a)(36), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1770, 1834; Pub. L. 108–357, title VIII, § 902(b), Oct. 22, 2004, 118 Stat. 1651; Pub. L. 113–295, div. A, title II, § 221(a)(42), Dec. 19, 2014, 128 Stat. 4044.)
Editorial Notes
Amendments2014—Subsec. (c). Pub. L. 113–295 struck out “beginning after December 31, 1953,” after “any taxable year” and “The election shall apply only with respect to expenditures paid or incurred on or after August 16, 1954.” at end.
2004—Subsec. (a). Pub. L. 108–357 amended heading and text of subsec. (a) generally. Prior to amendment, text read as follows: “The organizational expenditures of a corporation may, at the election of the corporation (made in accordance with regulations prescribed by the Secretary, be treated as deferred expenses. In computing taxable income, such deferred expenses shall be allowed as a deduction ratably over such period of not less than 60 months as may be selected by the corporation (beginning with the month in which the corporation begins business).”
1976—Subsec. (a). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Subsec. (c). Pub. L. 94–455, § 1901(a)(36), substituted “August 16, 1954” for “the date of enactment of this title”.
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