PRIA, Government Policy, Made Personal

Summary

You can choose to deduct some start-up costs when your business begins. If you make that choice, you may immediately deduct up to the smaller of your total start-up costs or $5,000, but that $5,000 drops dollar-for-dollar once your start-up costs go over $50,000. Any remaining start-up costs are spread out and deducted evenly over 180 months starting the month your business begins. For tax year 2010 only, the immediate amount was $10,000 and the cutoff was $60,000. If you sell or close the whole business before the 180 months end, any leftover deferred costs can be deducted if they qualify under section 165. Start-up costs are amounts paid to investigate, create, buy, or prepare for a business, or to carry on activities before the business actually starts. Costs already deductible under sections 163(a), 164, 174, or 174A are not start-up costs. When the business begins is set by IRS rules, but if you acquire a business it begins when you buy it. You must make the election by the time you file the tax return for the year the business starts (including extensions), and the choice applies to that year and all later years.

Title 26, §195

Internal Revenue Code, Source: USLM XML via OLRC

(a)Capitalization of expenditures

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

(b)Election to deduct

(1)Allowance of deduction

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)Dispositions before close of amortization period

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)Special rule for taxable years beginning in 2010

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)Definitions

For purposes of this section

(1) Start-up expenditures

(2)Beginning of trade or business

(A)In general

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)Acquired trade or business

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

(d)Election

(1)Time for making election

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)Scope of election

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

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note under section 174A of this title.

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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

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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

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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

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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

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Statutory Notes and Related Subsidiaries

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Citations & Metadata