I know that certain starup business expense can me amortized over sixty months. However, certain of these expenses incurred after the business becomes active are not amortizable. My question is when, according to the Federal Tax code does a business become active? Is it when it becomes a legal business or whe nit starts operations? Can anyone point me to a Code or Ruling that relates to this matter? Section 195 of the IRC and various Revenue Rulings have provided me little insight. Thanks
They (Internal Revenue Service) have a web site, and you can order publications there, I believe.
small part of long article
Business Startup Expenses
Investigating the potential for a new business and getting it started can be an expensive proposition. However, under the general rules for business deductions you couldn’t deduct these expenses, because only expenses for an existing trade or business can be deducted. By definition, you incur your startup expenses prior to the time that your business is born.
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"Claiming amortization expenses. Assuming your business was successfully launched and you want to amortize your startup costs, total up all the costs paid or incurred before your business opened and divide them by 60 months (or longer, if you desire). The result is the monthly deduction amount. Your amortization period will begin with the month in which your business opened.
If you opened on October 31, 2000, you could deduct costs for October, November and December of 2000 which would be equal to 3/60thsof your total startup costs.
For the first year, your amortization deduction would be shown on Part VI of Form 4562, Depreciation and Amortization, and then carried over to the appropriate tax form for your business. For sole proprietors, it would be carried over to your Schedule C as an “other” expense."
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