"Where Everyone Has an MBA"
Tel: (612) 246-4616

STARTUP COSTS Definition

STARTUP COSTS or Organization Cost, in the U.S., is when a new corporation is created, the costs associated with the formation are not deductible. An election must be made to amortize organizational costs no later than the due date (including extensions) of the return for tax year in which the active trade or business begins. If an election is not made to amortize these costs, they must be capitalized on the books and are not subject to amortization resulting in permanent capitalization. Upon making the timely election, the corporation may recover these costs through amortization deductions over a 60 month period. Organizational expenditures include any expenditure which is:

• incident to the creation of the corporation,
• chargeable to capital account, and 
• is of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.

The following are examples of organization costs:

• legal services incident to the organization of the corporation, such as drafting the corporate charter, by-laws, minutes of organizational meetings, terms of original stock certificates, etc.
• necessary accounting services.
• expenses of temporary directors and of organizational meetings of directors or stockholders.
• fees paid to state of incorporation.

Learn new Accounting Terms

EDIT CHECKS are reasonableness, validity, limit, and completeness tests that are programmed routines designed to check input data and processing results for completeness, accuracy and reasonableness.

INTEREST COVERAGE is a ratio which indicates the ability of a company to cover net interest expenses with income before net interest and taxes. It is calculated by dividing income before interest and taxes by interest.

Suggest a Term