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.


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.

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