Startup costs now can be deducted

One of the most frustrating tax issues for entrepreneurs has been startup costs – they pour thousands of dollars into market research, advertising and other expenses to get their companies up and running, but have had little in the way of immediate relief from the government.

But, with a change in the Internal Revenue Code that took effect Oct. 22, 2004, companies – including many filing their first tax returns this year – now are allowed to deduct $5,000 of their startup costs, such as market research and office supplies.

Claiming the deduction – known as a Section 195 deduction after the tax code provision that authorizes it – involves a little more paperwork than more typical business deductions entail. Companies need to file Form 4562, Depreciation and Amortization and declare that they are electing to take the deduction for startup costs.

The form is available at the IRS Web site, www.irs.govwww.irs.gov.