Dear TaxGuru,

How does one treat new start up expenses for starting a new business. I incurred these expenses before I started or opened my store for busineses.

Thanks.

The Startup expenses are called either Organization Expense or Actual Start-Up Expenses. These are incurred before the business is started.

Usually the Organization costs are generally the Attorneys Fees incurred for Articles of Incorporation, Accountants fees or any State filing fees for starting the business.

The other expenses that include traveling to the business site, costs incurred in payng the for the feasibility of the business, CPA's fees for analysising the cashflow for the business, or reviewing prior owners financial statement etc.. All these expenditures are called Startup expenses.

Together with Organization costs, Startup Costs are capitalized and amortized over 60 Months.

"However, Per Recent IRS changes in the tax code, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. Any remaining costs must be amortized.

Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Organizational costs include the costs of creating a corporation.

But, remember, Rental Security is not an expense, rather it sits on the balance sheet as a depost, under Other Assets!