For federal tax purposes, many business expenses must be capitalized and then deducted over a period of years. Under the Internal Revenue Code (the "Code") § 195, taxpayers can elect to deduct up to $5,000 of business startup costs. The $5,000 deduction is reduced dollar-for-dollar (but not below zero) by the cumulative amount of startup costs exceeding $50,000. Thus, for example, a business with $53,000 of startup costs would be able to immediately deduct $2,000 of startup costs and would have to amortize the remaining $51,000. The immediate deduction results in a deferral of tax because startup costs would otherwise have to be capitalized and deducted over a 15-year recovery period. Startup costs consist of business expenses incurred after the organization of a business but before it begins generating revenue. Examples include pre-opening advertising costs and costs incurred in procuring business premises or lining up prospective suppliers and customers.
Massachusetts conforms to Code § 195 for purposes of both the income measure of the corporate excise and the personal income tax. This conformity results in a deferral of Massachusetts tax and therefore constitutes a state tax expenditure.
Origin: IRC §195
Corporate Excise Tax
Accelerated Deductions from Gross Income
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Election to Deduct and Amortize Business Start-up Costs
For federal tax purposes, many business expenses must be capitalized and then deducted over a period of years. Under the Internal Revenue Code (the "Code") § 195, taxpayers can elect to deduct up to $5,000 of business startup costs. The $5,000 deduction is reduced dollar-for-dollar (but not below zero) by the cumulative amount of startup costs exceeding $50,000. Thus, for example, a business with $53,000 of startup costs would be able to immediately deduct $2,000 of startup costs and would have to amortize the remaining $51,000. The immediate deduction results in a deferral of tax because startup costs would otherwise have to be capitalized and deducted over a 15-year recovery period. Startup costs consist of business expenses incurred after the organization of a business but before it begins generating revenue. Examples include pre-opening advertising costs and costs incurred in procuring business premises or lining up prospective suppliers and customers. <BR><BR>Massachusetts conforms to <a href="https://www.law.cornell.edu/uscode/text/26/195" target="_blank">Code § 195</a> for purposes of both the income measure of the corporate excise and the personal income tax. This conformity results in a deferral of Massachusetts tax and therefore constitutes a state tax expenditure.
<a href="https://www.law.cornell.edu/uscode/text/26/195" target="_blank">IRC §195</a>
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