Organizational Expenditures |Startup cost | Corporate Tax Course | Tax Cuts and Jobs Act | CPA Exam

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Expenses incurred in connection with the organization of a corporation normally are capitalized.
Under § 248, a corporation may elect to amortize organizational expenditures over the 180-month period beginning with the month in which the corporation begins business.34 Organizational expenditures include the following: • Legal services related to the organization (e.g., drafting the corporate charter, bylaws, minutes of organizational meetings, and terms of original stock certificates). • Necessary accounting services. • Expenses of temporary directors and of organizational meetings of directors or shareholders and fees paid to the state of incorporation. Expenses that do not qualify as organizational expenditures include those connected with issuing or selling shares of stock or other securities (e.g., commissions, professional fees, and printing costs) or with transferring assets to a corporation. These expenses must be capitalized. The first $5,000 of organizational costs is immediately expensed, with any remaining costs amortized over a 180-month period. However, the $5,000 expensing amount is phased out on a dollar-for-dollar basis when these costs exceed $50,000.

Organizational expenditures are different from startup expenditures.35 Startup expenditures include various investigation expenses involved in entering a new business (e.g., travel, market surveys, financial audits, and legal fees) and operating expenses such as rent and payroll that are incurred by a corporation before it actually begins to produce any gross income. At the election of the taxpayer, startup expenditures are deductible in the same manner as organizational expenditures.

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