What counts
Costs incidental to the creation of the entity: state incorporation or organization fees, legal fees for drafting the charter, bylaws, articles, partnership agreement, accountant fees for setting up the books, and similar professional fees. Costs to issue or sell stock, transfer assets to the entity, or organize trade are not organizational.
Election
No formal election is required. Simply deduct up to $5,000 (phased out above $50,000) on the first return and amortize the remainder over 180 months. The election is deemed to be made by attaching a statement (most software does this automatically) and is irrevocable for the year filed.
Coordination with start-up
Organizational costs (Section 248 for corps, 709 for partnerships) are tracked separately from start-up costs (Section 195) even though the deduction and amortization rules are parallel. A new corporation may have $4,000 of start-up costs (deductible immediately) AND $4,000 of organizational costs (also deductible immediately) — the $5,000 cap applies to each pool separately.
LLC organization
For an LLC taxed as a partnership, organizational costs follow Section 709. For an LLC taxed as a corporation, Section 248 applies. For a single-member LLC treated as a disregarded entity, Section 195 (start-up) applies — there is no separate Section 248/709 organizational deduction because the entity is not separately taxable.
Year of beginning business
The 15-year amortization begins the month the business begins, not the month of legal formation. A corporation formed in October that opens for business in March of the following year begins amortization in March.
Documentation that survives an exam
An IRS examination of this deduction will request three things: proof of payment (bank or card statement), proof of the underlying transaction (invoice or receipt), and proof of business purpose (a contemporaneous note or calendar entry). The first two are usually trivial to produce; the third is where most filers fall short. Capturing business purpose at the moment of the expense — a one-line note in your bookkeeping software or a category and memo on the receipt-capture app — converts a generic charge into a documented deduction that will withstand scrutiny three to six years later when memory has faded.