Legal Definitions - organizational expense

An organizational expense is an expenditure of money, time, labor, or resources incurred while setting up a corporation or other entity. It is a type of business expense that is charged against revenue for a specific period.

Examples of organizational expenses include legal fees, accounting fees, and state filing fees incurred during the process of incorporating a business. These expenses are not deductible in the year they are incurred but must be amortized over a period of time.

For instance, if a business spends $10,000 on legal fees and other expenses to incorporate, it cannot deduct the entire amount in the year it was incurred. Instead, it must spread the expense over a period of 180 months (15 years) and deduct $56 per month as an organizational expense.

The purpose of amortizing organizational expenses is to match the expense with the period in which the business benefits from it. This ensures that the business does not receive an unfair tax advantage by deducting the entire expense in the year it was incurred.