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For business start up amounts paid or incurred after Oct. 22, 2004, a taxpayer can elect a current deduction for up to $5,000 of start-up expenses in the tax year in which the active trade or business begins. However, this $5,000 amount is reduced (but not below zero) by the amount by which the cumulative cost of start-up expenses exceeds $50,000. The remainder of the start-up expenses can be claimed as a deduction ratably over a 180-month period. Before the 2004 Jobs Act, no current deductions were allowed for start-up expenses. However, a taxpayer could have elected to treat start-up expenses as deferred expenses and deducted the expenses equally over a period of not less than 60 months (beginning with the month in the active trade or business began).

Similar provisions apply to corporate organizational expenses and partnership organizational expenses. For amounts paid or incurred after Oct. 22, 2004, a corporation or partnership can elect a current deduction for a limited amount ($5,000) of organizational expenses in the tax year in which the active trade or business begins. However, this $5,000 amount is reduced (but not below zero) by the amount by which the cumulative cost of organizational expenses exceeds $50,000. The remainder of the organizational expenses can be claimed as a deduction ratably over a 180-month period.

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