Costs of Incorporation Services: Are They Tax Deductible?

by Matthew Burgess on June 12, 2010

Many of our clients ask if the cost of forming a new corporation or limited liability company is tax deductible. Here is the guidance excerpted From IRS Publication 535 (2008), Business Expenses:

Business Start-Up and Organizational Costs

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized…

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation.

Source: http://www.irs.gov/publications/p535

Example: Expenditures of $5,000 or less.

Newco, Inc. is a calendar year S corporation that begins business in August 2009. In June 2009, it paid the law firm of Lennon and McCartney $2,500 to draft its Articles of Incorporation and one month later paid $500 to register the corporation with the Secretary of State. Newco, Inc. is deemed to have elected to deduct its organizational expenditures. Accordingly, it may deduct the $3,000 of the organizational expenditures in 2009, the tax year in which it begins business.

Of course, our fees are not nearly as expensive as the fictional law firm in this example from the IRS, or any real law firms for that matter. We save you money, and we give you more room for other deductible start-up costs under $5000.

Related Posts with Thumbnails

Post to Twitter Post to Delicious Post to Digg Post to Facebook Post to Reddit Post to StumbleUpon

If you're new here, you may want to subscribe to my RSS feed or Subscribe to Formation Solutions by Email. Thanks for visiting!

  • http://registerllcdirect.com/ Register LLC Direct

    Good Day my friend, you have cool info here, i appreciate your knowledge. Thanks alot!.

  • http://www.formationsolutions.com/blog/forming-a-corporation-or-llc/forming-a-corporation-or-llc-in-january-2011-file-now-avoid-long-waits Forming a Corporation or LLC in January 2011? File Now: Avoid Long Waits

    [...] Business startup costs are tax deductible. So why not deduct these expenses from your taxes sooner rather than later? [...]

  • http://www.formationsolutions.com/blog/corporation-and-llc-tax-issues/which-business-entity-saves-the-most-on-taxes Which Business Entity Saves the Most on Taxes?

    [...] Special incentives for hiring, purchasing equipment, and other expansion-based activities (including deductions for start-up costs) [...]

  • http://www.quora.com/Is-california-franchise-tax-deductible-in-sole-proprietor-LLC#ans575433 Is california franchise tax deductible in sole proprietor LLC? – Quora

    [...] on our blog about a related topic, deducting the startup costs of forming a new LLC or corporation:http://www.formationsolutions.co…This answer .Please specify the necessary improvements. Edit Link Text Show answer summary [...]

  • http://www.natlus.co.uk/ Accountants in Oxford

    On the day of the career fair the recruiters
    from the companies will be inundated by you and every other accounting student
    in your class. You have two goals. First, you must make yourself known to the
    recruiters and obtain at least one business card. Second, you must manage not
    to give the wrong impression or you will risk your resume being
    “accidentally left behind.” Below are 5 tips to make sure that you
    achieve both these goals.

  • Lawinc2010

    Why Form?Why LawInc?Pricing and PackagesHow it Works
    Forming a corporation is one of the greatest ways business owners can shield their personal assets. Most individuals choose to incorporate solely for this reason, but there are other advantages as well.

blog comments powered by Disqus

Previous post:

Next post: