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Tax Reporting of Business Startup and Expansion Costs: Deduction and Amortization Rules

Navigating Sections 195, 162 and 263(a) on Qualified Startup Expenses

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, November 14, 2017

Recorded event now available

This course will provide corporate tax advisers with a practical guide to the proper tax treatment of business startup and expansion costs. The panel will detail startup and expansion costs that are deductible in the year of expenditure, describe the amortization rules for expenses over allowable thresholds, and discuss book-tax differences in handling startup and expansion costs.

Description

Determining the proper tax treatment of business startup costs presents a hurdle for many corporate tax advisers and compliance professionals. While the statutory language is relatively clear in allowing companies to take a current deduction of up to $5,000 subject to limitations, identifying expenses that are potentially deductible is difficult.

Section 195 allows taxpayers to deduct a portion of qualified startup costs, defined as either investigatory or pre-opening expenses. If startup costs exceed $50,000, then deductibility is phased out and reduced. The Code requires companies to amortize remaining startup costs over a period of 180 months.

Only costs deductible under Section 162 as ordinary and necessary business expenses are eligible startup costs. The Code provides guidance on how corporations must treat expenses incurred in starting up subsidiaries and branch operations.

Further complicating the calculations are the provisions of IRC 263(a), which define certain costs as required to be amortized but also provide some exceptions to amortization requirements. Tax advisers should have a thorough understanding of how these Code provisions interact to ensure proper tax treatment of startup costs.

Listen as our experienced panel provides a practical guide to proper tax reporting of business startup costs. The panel will review startup and expansion costs deductible in the year of expenditure, explain amortization rules for expenses over allowable thresholds, and outline book-tax differences for startup and expansion costs.

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Outline

  1. Determining deductible startup costs
  2. General rule setting deduction limits and amortization requirements
  3. Section 263a exceptions to amortization requirements
  4. Treatment of expenses for expansion of existing business
    1. Establishing that new business unit is a continuation rather than a separate startup
    2. Branch vs. subsidiary
    3. What expansion costs must be capitalized
  5. Book vs. tax differences

Benefits

The panel will discuss these and other important topics:

  • The interplay between Sections 162 and 195 in determining deductible business startup costs
  • Exceptions to default amortization requirements present in Section 263(a)
  • Differentiating between startup costs and currently deductible business expansion costs for establishing subsidiary units
  • Treatment of unamortized startup costs in instances of business or subsidiary failure

Faculty

Fraser, Erin L.
Erin L. Fraser
Atty
Hanson Bridgett

Mr. Fraser focuses his practice on corporate law specializing in taxation, estate and...  |  Read More

Youhas, Andrew
Andrew M. Youhas, CPA/JD/MBA
Youhas & Associates

Mr. Youhas concentrates his practice on taxation and trusts and estates.  He has in excess of 20 years of...  |  Read More