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What is an Organization Cost?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 25 November 2016
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An organization cost is a cost that is associated with the process of starting a business. Costs incurred before a business is formally started are considered organization costs and many are tax-deductible, allowing business owners to write off some of the expenses associated with opening their businesses. An accountant can provide specific information on the costs that qualify for tax deductions and the costs that do not. Accountants can also assist people with their financial and tax filings to ensure that they comply with the law.

One important aspect of organization costs can be the cost of researching a new business. People considering opening a new business or acquiring a franchise usually take the time to research carefully and this can include incurring some expenses associated with research, including travel, buying books, and other costs. These costs are typically tax deductible because tax agencies recognize that investigation before opening a business is a legitimate business expense.

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Other costs include legal fees, as many people consult attorneys while starting a business, and filing fees. Businesses generally need permits and other authorizations from the government and these cost money. Payments to inspectors and other government officials can also be involved and these are also be treated as organization costs. Likewise, certifications required of business owners in some industries can be associated with organization cost, as can costs like acquiring franchises. Guides for business owners from government agencies usually provide an estimate of known organization costs so that people can get an idea of the kinds of expenses involved in starting a business.

Tax agencies usually provide information about how to handle organization cost in tax filings. This information can be found in guides published for business owners, as well as online, and it is usually free of charge. These agencies provide information as a service to help people fill out their taxes accurately and completely so they can avoid refiling and other problems. People who are not sure about how to find this information can contact a tax agency to request information and assistance.

Leases, real estate purchases, and costs associated with equipment are fully tax deductible in most cases, and these costs can be incurred both before and after a business is established. These types of expenses may be treated and handled differently than an organization cost due to differences in how they are incurred and treated by the business. Rather than being an investment in starting a business as with an organization cost, they are investments in maintaining day-to-day operations for the business.

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