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When you’re starting a business, be careful what you do with your start up costs.  Costs that you think would normally be deductible may not be and this is all because of Code Section 195.  Start up costs fall into one of three categories…

1)  costs incurred in investigating the creation or acquisition of a business
2)  costs incurred in creating an active trade or business and
3)  any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of that activity becoming an active trade or business.

If your costs fall into one of these two categories, then the IRS gives you two choices.  You can fully capitalize the costs which means you get no deduction and the costs are rolled into the basis of your business.  Option two lets you amortize the costs over 15 years although there is a provision for costs incurred after 2004 that allows you to expense the first $5,000 in costs (although if you have more then $50,000 in costs, then the amount you expense is reduced dollar for dollar for the amount that exceeds $50,000.  Fifteen years is a long time so be sure to consult with a professional to make sure you’re classifying your costs correctly.