Organizational costs definition

What are Organizational Costs?

Organizational costs are those costs incurred that relate to the setup of a business. Organizational costs include the following:

• The survey cost associated with a review of potential markets

• Training employees in their new tasks

• Legal costs to create bylaws and articles of incorporation (for a corporation)

• Legal costs to create a partnership agreement (for a partnership)

• Filing fees with the applicable state government

• Cost of organizational meetings

Organizational costs are incurred whenever a subsidiary is created, so these costs can be incurred repeatedly over the life of a parent company.

Costs Not Included in Organizational Costs

Costs not considered to be organizational costs include research and experimental costs, and the costs associated with issuing or selling stock.

Accounting for Organizational Costs

According to the U.S. tax code, a business can deduct a maximum of $5,000 of organizational costs in its first year, with all excess organizational costs being charged to expense over a period of 15 years. However, if the costs incurred are immaterial, it is more efficient to charge these costs to expense as incurred.