Federal Issue Brief
H.R.4032, Help Entrepreneurs Create American Jobs Act / S.2088 Small Business Start up Support Act
H.R. 4032 and S. 2088 would amend the Internal Revenue Code to make the increase (from $5,000 to $10,000) in the tax deduction for the start-up expenditures of an active trade or business permanent (currently, limited to taxable years beginning in 2010).
Current law for Deducting Business Start-up Costs:
- The Internal Revenue Service (IRS) says that start-up costs are the amount paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business.
- With certain restrictions the IRS says a taxpayer may deduct two types of costs: 1) costs for investigating, and capital expenditures that are part of a taxpayer’s investment in their business assets (these investment costs may presently be spread out over 15 years if they total more than $5,000).
- A taxpayer may deduct up to $5,000 in start-up costs in the first year in business. This deduction is restricted if the taxpayer has more than $50,000 in start-up costs.
- Instead of deducting $5,000 in the first year, a taxpayer may opt to spread all start-up costs over 15 years, taking the same deduction each year. For example, if the start-up costs are $45,000, the taxpayer could deduct $3-K annually for 15 years.
- In addition to the $5,000 start-up deduction, the IRS permits an additional bonus deduction of up to $5,000 for small business organizational expenses (i.e., the expense of forming a corporation, partnership, or limited liability company not a sole proprietorship.)
H.R. 4032 was introduced on 2/15/2012 by Rep. Hank Johnson (D-GA4th) and referred to the House Ways & Means Commerce Subcommittee on Health. S.2088 was introduced on 2/9/2012 by Senator John Rockefeller (D-WV) and referred to Senate Committee on Finance.
Gina Luke, Assistant Director, Governmental Relations Division, 202-289-3204