Start Up Costs – Costs Of Organizing A Corporation
The costs of organizing a corporation are direct costs of creating the corporation. Clients can amortize an organizational cost only if it meets all of the following requirements:
- It is for the creation of the corporation;
- It is chargeable to a capital account;
- The client could amortize the cost over the life of the corporation if the corporation has fixed life.
Clients must have incurred the cost before the end of the first tax year in which the corporation was in business. A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them that year.
The following are types of organizational costs:
- The cost of legal services (such as drafting the charter, bylaws, terms of the original stock certificates, and minutes of organizational meetings)
- Costs of temporary directors
- The cost of organizational meetings
- State incorporation fees
- Accounting services for setting up the corporation.
COST THAT CANNOT BE AMORTIZED–
The following costs are not organizational costs and must be capitalized:
Costs for issuing and selling stocks and securities, such as commissions, professional fees, and printing costs; or costs associated with transfer of assets to the corporation.
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