Incorporation Expenses
If you decide to do business as a corporation, you can have your corporation elect to deduct its organization expenditures over a period of at least 60 months. If this election is not made, the expenditures must be capitalized and will not be recovered until the corporation is liquidated.
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If your corporation is a success and you want to pass it on to future generations, you'll want to make sure to take advantage of this election. If you don't, as a practical matter, your corporation may never get to deduct its corporate organizational costs.
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If the corporation makes this election, the expenditures incurred before the end of its first tax year (whether or not paid in that year) may be allowed as a deduction to be taken in equal installments over the period elected.
Requirements. Which types of expenditures should you include? You can include expenses that meet the following three conditions:
- They must be directly related to the creation of the corporation.
- They must be of the type that would be chargeable to a capital account.
- If the expenses are related to the creation of a corporation having a limited life, they must be of a character that would benefit the corporation over its entire life.
Examples of expenditures that can be deducted include:
- legal and accounting fees to obtain the corporate charter
- legal fees for drafting the charter, by-laws, minutes of organizational meetings, and the terms of original stock certificates
- fees paid to the state of incorporation
- expenses of temporary directors
What can't be deducted. Examples of nondeductible expenditures include costs of issuing shares of stock, such as commissions, professional fees, and printing costs.
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