Page 88 - Small Business Taxes

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Topics can't recover other costs until you sell the busi-
Repair and Maintenance This chapter discusses: ness or otherwise go out of business. For a dis-
cussion on how to treat these costs, see If your
Costs • Deducting amortization attempt to go into business is unsuccessful un-
• Amortizing costs of starting a business der Capital Expenses in chapter 1.
Generally, you can deduct amounts paid for re- • Amortizing costs of getting a lease For costs paid or incurred after September
pairs and maintenance to tangible property if • Amortizing costs of section 197 intangibles 8, 2008, you can deduct a limited amount of
the amounts paid are not otherwise required to • Amortizing reforestation costs startup and organizational costs. The costs that
be capitalized. However, you may elect to capi- • Amortizing costs of geological and aren't deducted currently can be amortized rat-
talize amounts paid for repair and maintenance geophysical costs ably over a 180-month period. The amortization
consistent with the treatment on your books and • Amortizing costs of pollution control period starts with the month you begin operat-
records. If you make this election, it applies to facilities ing your active trade or business. You aren't re-
all amounts paid for repair and maintenance to • Amortizing costs of research and quired to attach a statement to make this elec-
tangible property that you treat as capital ex- experimentation tion. You can choose to forgo this election by
penditures on your books and records for the • Amortizing costs of certain tax preferences affirmatively electing to capitalize your startup
tax year. costs on your income tax return filed by the due
Useful Items date (including extensions) for the tax year in
How to make the election. To make the elec- You may want to see: which the active trade or business begins. Once
tion to treat repairs and maintenance as capital made, the election to either amortize or capital-
expenditures, attach a statement titled “Section Publication ize startup costs is irrevocable and applies to all
1.263(a)-3(n) Election” to your timely filed return startup costs that are related to your trade or
(including extensions). For more information on 544 544 Sales and Other Dispositions of business. See Regulations sections 1.195-1,
what to include in the statement, see Regula- Assets 1.248-1, and 1.709-1.
tions section 1.263(a)-3(n). If you timely filed
your return without making the election, you can 550 550 Investment Income and Expenses For costs paid or incurred after October 22,
still make the election by filing an amended re- 946 946 How To Depreciate Property 2004, and before September 9, 2008, you can
turn within 6 months of the due date of the re- elect to deduct a limited amount of business
turn (excluding extensions). Attach the state- Form (and Instructions) startup and organizational costs in the year your
ment to the amended return and write “Filed active trade or business begins. Any costs not
pursuant to section 301.9100-2” on the state- 3115 3115 Application for Change in deducted can be amortized ratably over a
ment. File the amended return at the same ad- Accounting Method 180-month period, beginning with the month
dress you filed the original return. 4562 4562 Depreciation and Amortization you begin business. If the election is made, you
must attach any statement required by Regula-
6251 6251 Alternative Minimum tions sections 1.195-1(b), 1.248-1(c), and
Tax—Individuals 1.709-1(c), as in effect before September 9,
See chapter 12 for information about getting 2008.
publications and forms. Note. You can apply the provisions of Reg-
8. ulations sections 1.195-1, 1.248-1, and 1.709-1
How To Deduct to all business startup and organizational costs
paid or incurred after October 22, 2004, provi-
Amortization Amortization ded the period of limitations on assessment
hasn't expired for the year of the election. Oth-
To deduct amortization that begins during the erwise, for business startup and organizational
costs paid or incurred after October 22, 2004,
What's New current tax year, complete Part VI of Form 4562 and before September 9, 2008, the provisions
and attach it to your income tax return.
1.195-1(b),
sections
under
Regulations
To report amortization from previous years, 1.248-1(c), and 1.709-1(c), as in effect before
Amortization of research and experimental in addition to amortization that begins in the cur- September 9, 2008, will apply.
expenditures. Specified research or experi- rent year, list on Form 4562 each item sepa- For costs paid or incurred before October
mental costs paid or incurred in tax years begin- rately. For example, in 2021, you began to am- 23, 2004, you can elect to amortize business
ning after 2021 must be capitalized and amor- ortize a lease. In 2022, you began to amortize a startup and organizational costs over an amorti-
tized ratably over a 5-year period (15-year second lease. Report amortization from the new zation period of 60 months or more. See How
period for any expenditures related to foreign lease on line 42 of your 2022 Form 4562. Re- To Make the Election, later.
research). See Research and Experimental port amortization from the 2021 lease on line 43 The cost must qualify as one of the follow-
Costs, later. of your 2022 Form 4562. ing.
• A business startup cost.
If you don't have any new amortizable ex- • An organizational cost for a corporation.
Introduction penses for the current year, you aren't required • An organizational cost for a partnership.
to complete Form 4562 (unless you are claim-
Amortization is a method of recovering (deduct- ing depreciation). Report the current year's de- Business Startup Costs
ing) certain capital costs over a fixed period of duction for amortization that began in a prior
time. It is similar to the straight line method of year directly on the “Other deduction” or “Other Startup costs are amounts paid or incurred for
depreciation. expense” line of your return. (a) creating an active trade or business, or (b)
The various amortizable costs covered in investigating the creation or acquisition of an
this chapter are included in the list below. How-
ever, this chapter doesn't discuss amortization Starting a Business active trade or business. Startup costs include
of bond premium. For information on that topic, amounts paid or incurred in connection with an
existing activity engaged in for profit, and for the
see chapter 3 of Pub. 550, Investment Expen- When you start a business, treat all eligible production of income in anticipation of the activ-
ses. costs you incur before you begin operating the ity becoming an active trade or business.
business as capital expenditures that are part of
your basis in the business. Generally, you re-
cover costs for particular assets through depre-
ciation deductions. However, you generally
Chapter 8 Amortization Page 29