§195 — Title 26 Internal Revenue Code | U.S. Code

Summary

You cannot write off start-up costs unless you pick a special option. If you choose it, you can deduct in the year your business actually begins the smaller of your total start-up costs or $5,000, but that $5,000 is cut down (never below zero) by how much your start-up costs go over $50,000. Any remaining start-up costs are spread out and deducted in equal amounts over 180 months, starting the month the business begins. If you sell or stop the business before that time ends, any leftover deferred expenses may be claimed if allowed under section 165. For a tax year that begins in 2010, use $10,000 and $60,000 instead of $5,000 and $50,000. Start-up costs mean money spent to look into, set up, or start a business, or to prepare to earn income before the business begins, and that would have been deductible if they were for running an existing business in the same field. When the business starts is set by IRS rules, except a bought business counts as starting when you buy it. You must make the election by the due date (including extensions) of the tax return for the year the business starts, and once you pick it you must keep using that method for that year and later years.

Title 26, §195

Internal Revenue Code — Source: USLM XML via OLRC

(a)Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures.

(b)(1)If a taxpayer elects the application of this subsection with respect to any start-up expenditures—

(A)the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of—

(i)the amount of start-up expenditures with respect to the active trade or business, or

(ii)$5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and

(B)the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.

(2)In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.

(3)In the case of a taxable year beginning in 2010, paragraph (1)(A)(ii) shall be applied—

(A)by substituting “$10,000” for “$5,000”, and

(B)by substituting “$60,000” for “$50,000”.

(c)For purposes of this section—

(1)The term “start-up expenditure” means any amount—

(A)paid or incurred in connection with—

(i)investigating the creation or acquisition of an active trade or business, or

(ii)creating an active trade or business, or

(iii)any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and

(B)which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred.

(2)(A)Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe.

(B)An acquired active trade or business shall be treated as beginning when the taxpayer acquires it.

(d)(1)An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof).

(2)The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2025—Subsec. (c)(1). Pub. L. 119–21 substituted “174, or 174A” for “or 174” in concluding provisions. 2010—Subsec. (b)(3). Pub. L. 111–240 added par. (3). 2004—Subsec. (b). Pub. L. 108–357, § 902(a)(2), substituted “deduct” for “amortize” in heading. Subsec. (b)(1). Pub. L. 108–357, § 902(a)(1), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins).” 1984—Subsec. (a). Pub. L. 98–369 amended subsec. (a) generally, substituting provisions dealing with capitalization of expenditures for provisions dealing with election to amortize. Subsec. (b). Pub. L. 98–369 amended subsec. (b) generally, substituting provisions dealing with election to amortize for provisions dealing with start-up expenditures. Subsec. (c). Pub. L. 98–369 amended subsec. (c) generally, substituting provisions setting forth definitions for provisions dealing with election. Subsec. (d). Pub. L. 98–369 amended subsec. (d) generally, substituting provisions dealing with election for provisions dealing with business beginning.

Statutory Notes and Related Subsidiaries

Effective Date

of 2025 AmendmentAmendment by Pub. L. 119–21 applicable to amounts paid or incurred in taxable years beginning after Dec. 31, 2024, subject to election for retroactive application by certain small businesses and election to deduct certain unamortized amounts paid or incurred in taxable years beginning before Jan. 1, 2025, see section 70302(e), (f) of Pub. L. 119–21, set out as an

Effective Date

note under section 174A of this title.

Effective Date

of 2010 Amendment Pub. L. 111–240, title II, § 2031(b), Sept. 27, 2010, 124 Stat. 2559, provided that: “The amendment made by this section [amending this section] shall apply to amounts paid or incurred in taxable years beginning after December 31, 2009.”

Effective Date

of 2004 Amendment Pub. L. 108–357, title VIII, § 902(d), Oct. 22, 2004, 118 Stat. 1652, provided that: “The

Amendments

made by this section [amending this section and section 248 and 709 of this title] shall apply to amounts paid or incurred after the date of the enactment of this Act [Oct. 22, 2004].”

Effective Date

of 1984 Amendment Pub. L. 98–369, div. A, title I, § 94(c), July 18, 1984, 98 Stat. 615, provided that: “The

Amendments

made by this section [amending this section] shall apply to taxable years beginning after June 30, 1984.”

Effective Date

Pub. L. 96–605, title I, § 102(c), Dec. 28, 1980, 94 Stat. 3522, provided that: “The

Amendments

made by this section [enacting this section] shall apply to amounts paid or incurred after July 29, 1980, in taxable years ending after such date.”

§195 Start-up expenditures

Summary

Title 26, §195

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Effective Date

Amendments

Effective Date

Amendments

Effective Date

Amendments

Citations & Metadata