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.

 

Save Money 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.

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.