Multi-Year Startup Costs

[jms64]

Due to COVID, the launch of our business is now in its 3rd year. We formed a S Corp in late 2019 and have incurred startup and organizational costs of about $12,000 to date. We're on track to open in 2022, but I'm unsure how we should account for the year-over-year increases to Intangible Asset Amortization (startup costs) and Organizational Cost for tax purposes.

With respect to entering amortization for an intangible asset (startup costs), the TurboTax Interview asks "how much did the asset cost?"  Is that how much total or how much that year? Accumulated amortization is the aggregate of all years to date, so I suspect the answer would have to be the total amount of startup costs to date; but I'm not really sure.

The same question would apply to Organizational Costs. We had initial organizational costs, but have yearly filings that have fees associated with them. Since we haven't started trading yet, we've expensed them and added their amortization to Accumulated Amortization of Intangible Assets.

Any help would be greatly appreciated. Thanks!

[AliciaP1 · Accepted solution]

If you have not yet earned income prior to 2022, your start-up costs and organizational costs should be accumulating into 1 intangible asset each and cannot be amortized until your business is earning income.

In the first year, you begin earning income, you can elect to deduct $5,000 as Start-Up and $5,000 as Organizational Cost Expense and then amortize the remaining amounts over 180 months.  The $5,000 has to be reduced by the amount of total Start-Up or Organizational Costs exceeding $50,000.

For more detailed information see Business Start-up and Organizational Costs.