Organizational costs are treated the same way as start-up costs. Enter the costs in the asset section and elect amortization.
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. PUB 535
Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation.
Qualifying costs. To qualify as an organizational cost, it must be:
• For the creation of the corporation,
• Chargeable to a capital account (see chapter 1),
• Amortized over the life of the corporation if the corporation had a fixed life, and • Incurred before the end of the first tax year in which the corporation is in business.
A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it doesn't pay them in that year. Examples of organizational costs include the following.
• The cost of temporary directors.
• The cost of organizational meetings.
• State incorporation fees.
• The cost of legal services.
Nonqualifying costs. The following items are capital expenses that can't be amortized.
• Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs.
• Costs associated with the transfer of assets to the corporation.
