Tax Relief for New Businesses Act
The Tax Relief for New Businesses Act would overhaul how the tax code treats early-stage business expenses. It consolidates start-up and organizational expenditures under one provision (section 195), expands the upfront deduction available for those costs, and introduces a special way to handle losses from these expenses through the net operating loss (NOL) rules. It also adds a specific rule related to “syndication fees” and otherwise makes a broad set of conforming changes across the code to reflect the consolidation. The bill applies to expenses paid or incurred in tax years starting after December 31, 2025. In short, the proposal is aimed at making it cheaper for new businesses to cover initial costs by allowing larger upfront deductions and more favorable NOL treatment, while removing certain other deductions (like syndication fees) from partnerships.
Key Points
- 1Consolidation of deductions: Start-up and organizational expenditures are merged into a single treatment under IRC Section 195, removing the separate “248” and related references and simplifying how these costs are amortized or deducted. Organizational expenditures are defined as costs tied to creating a corporation or partnership, capitalized, and with a limited-life amortization characteristic.
- 2Increased upfront deduction limits: The deduction limit for start-up and organizational expenditures is raised from $5,000 to $50,000, and the threshold for phase-out is raised from $50,000 to $150,000. This means a larger amount can be deducted upfront in the year the business begins, with a smaller amount amortized over time.
- 3Entity-level election for partnerships/S corporations: For partnerships and S corporations, the election to treat start-up and organizational expenditures is made at the entity level, rather than at the individual partner/shareholder level.
- 4Special NOL rules for start-up/organizational costs: If a taxpayer elects the special NOL treatment, those start-up and organizational losses are handled separately from other NOLs. For these NOLs, the deduction can offset 100% of taxable income (instead of the usual 80% cap), and certain general NOL limitations do not apply to them. The election is irrevocable.
- 5Definition of start-up and organizational NOLs: The NOL amount for these expenditures is the amount that would be a net operating loss if the only deduction were the start-up/organizational deduction.
- 6Treatment of syndication fees: The bill would add a rule stating that no deduction is allowed for syndication fees paid or incurred to promote or sell a partnership interest, to be reflected in Section 709 and related references.
- 7Conforming amendments: The bill makes numerous cross-references and structural changes across the code (e.g., removal of certain references to Section 248, and adjustments to various sections that previously referenced “start-up” or “organizational” expenditures).
- 8Effective date: The changes apply to expenses paid or incurred in tax years beginning after December 31, 2025.