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S Corporation CPA discusses Amortizing Business Start-up Costs for Form 1120-S, US Income Tax Return for an S Corporation | Intangible Assets

S Corporation CPA Form 1120-S CPA business startup costs

In my experience, S Corporation don’t claim all the legitimate business startup costs allowed ob Form 1120-S. I offer a free consult on S Corporation issues. (910) 399-2705.

S Corporation CPAs deal with amortizing business start-up costs, Goodwill, organizational cost, non compete clauses and other intangible assets. I’ll cover business start-up costs in this post and how to amortize them on Form 1120-S, US Income Tax Return for an S Corporation.

What is Amortization? Amortization is similar to depletion and depreciation. Amortization deals with deducting the cost of an intangible asset over time. Instead of deducting all of the business startup costs on the first Form 1120-S filed. Generally amortization allows deducting the same amount of cost for an intangible asset every year.

An S Corporation CPA always looks for business start-up expenses with a new Form 1120-S client Why? Well there’s always expense paid before the date of incorporation. In my experience, most new S Corporation clients don’t realize qualifying business start-up costs are “deductible,” albeit in a roundabout way through amortization. Here’s the two main criteria for qualifying business startup expenses:

  • It has to be a cost you could have legitimately deducted for your business.
  • You incur the cost before the S Corporation is established.

I always look for unclaimed amortization on a new S Corporation client. My biggest find? $225,000 of Goodwill the previous (non CPA) accountant didn’t claim. This Chiropractic client got to deduct $15,000 of amortization a year for 15 years.

The mechanics of business startup costs on Form 1120-S

You can directly deduct the first $5,000 of business startup costs. But many new S Corporations don’t need this initial deduction. Why? Because they run at a loss on the first Form 1120-S anyway. Any remaining business startup costs are amortized over a minimum 15 years. The S Corporation can elect a longer term, but 15 years is the usually and customary time period.

So if your S Corporation had $15,000 of business startup expenses, and you didn’t claim the $5,000 exception discussed above, the S Corporations deducts $1,000 a year for 15 years (assuming  a start date of January 1st).

I’m an S Corporation CPA that operates as an S Corporation. So I stay current on any Form 1120-S tax issues.

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