Section 195 (Revisiting the Taxation of Startup Expenditures)

The Contemporary Tax Journal Volume 8, No. 1, Winter 2019

14 Pages Posted: 26 Mar 2019 Last revised: 8 May 2019

Date Written: March 3, 2019

Abstract

Section 195 of the Internal Revenue Code was enacted as part of the Miscellaneous Revenue Act of 1980 as an incentive to create new businesses, and to reduce tax controversy and litigation over the tax treatment of start-up expenditures. The statute generally provides that up to $5,000 in start-up expenditures can be deducted, with any excess amortized over 180 months. After several decades and statutory amendments, recent tax filing data suggest that section 195 is being ignored by the vast majority of new partnerships and new C Corporations, and yet start-up expenditures are natural and expected from these new businesses. The implication is that these taxpayers are making sub-optimal start-up expenditure tax decisions which may increase their audit risks. This paper is the first to discuss tax filing data on this subject, and suggests amendments to section 195 to better align it with its legislative intent, while minimizing income distortion.

Keywords: Section 195, start-up expenses

JEL Classification: K

Suggested Citation

Rodriguez, Luis, Section 195 (Revisiting the Taxation of Startup Expenditures) (March 3, 2019). The Contemporary Tax Journal Volume 8, No. 1, Winter 2019. Available at SSRN: https://ssrn.com/abstract=3345788

Luis Rodriguez (Contact Author)

Alfred University ( email )

Alfred, NY 14802
United States

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