What are “Start-Up” costs?

To the IRS, qualified start-up costs are those expenses that a business incurs while in the process of determining whether or not to start a new business, and which new business to begin.  This is often called the “whether or which test”.  See IRS Rev. Rul. 99-23, 1999-1 CB 998. Any expenses incurred after this decision is made are not considered part of the search and decision-making process, but are assumed to be used to consummate the transaction, and therefore they must be capitalized.

Start-up expenses are fully deductible up to $5,000, with any additional balance amortized over a period of 180 months.  Taxpayers make an election to amortize start-up expenses by attaching a statement to the initial tax return of the business.

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