Start-up costs incurred fiscal year before business starts

I'm having a hard time finding the IRC that covers this.

Licensing and credential fees incurred in December 2019. Business actually starts in early 2020. Don't want to amortize these expenses ($500 worth). It's a cash based taxpayer with a calendar fiscal year.

All the references I find say you'd take this as a start-up expense against any income generated in 2020. I just can't find the IRC that says this is okay (and the publication isn't exactly clear on this point either).

Do I have this wrong, and the expense incurred in 2019 is actually stranded, or must be amortized?

Check Sec 195

Chris, somewhere in sec 195 it's gonna say you can deduct up to $5000 in the year the business starts, any more has to be amortized unless more than $50,000 of start up So you can deduct it all in 2020. Were you trying to deduct it all in 2019?

Thanks - yes I saw sec 195, but could not find the exact language that says it’s okay to take start-up expense from the prior (before business commenced) year, in the following year.

Unless the idea is that you treat it as amortized capital expense but you are just taking up to $5000 as one time expense (?)

I’m hung up on the notion that a calendar year cash based taxpayer would somehow be able to take a 2019 incurred start-up expense in tax year 2020 - and was trying to find clarification in the code.

195(b)(1)(A) tells you when you get the deduction.
195(c)(1)(A) tells you they are start-up expenditures only when paid or incurred [which of course is code language in the Code telling you it depends on your accounting method].
Your client is cash method and incurred the expense in 2019, and you say that twice, but when did he pay it? I think you'll tell us he paid it in 2019, so your answer is clear - it's capitalized in 2019 and deducted (assuming you elect) in 2020.

But let's say you have a situation where client is cash method, he incurs the start-up expenditure in 2019, and somehow does not pay it until 2021. I think it's still deductible (with election) in 2020, based on the same principle that allows a cash-method taxpayer to start depreciating equipment in the year it's placed in service, even if he has not paid for it. Others agree?

Thanks Len. So we elect (under 195.1) to capitalize the costs of licensing and credentials which will be paid in 2019, then we take the deduction in 2020.

There is no 195.1. The election is described in reg. 1.195-1(a) and (b) and you should read them carefully.

Some good pointers to caselaw and regs from a recent case addressing start-up costs, Yapp v Commish TC Memo 2018-147. They had a few more zeros in the expenses they were trying to write off early:

A taxpayer is not carrying on a trade or business for section 162(a) purposes until the business is functioning as a going concern and performing the activities for which it was organized. Richmond Television Corp. v. United States , 345 F.2d [*9] 901, 907 (4th Cir. 1965), vacated and remanded on other grounds , 382 U.S. 68 (1965); see also Glotov v. Commissioner , T.C. Memo. 2007-147. Business operations with respect to the activity must have actually commenced. See McKelvey v. Commissioner , T.C. Memo. 2002-63, aff'd , 76 F. App'x 806 (9th Cir. 2003). "Until that time, expenses related to that activity are not 'ordinary and necessary' expenses currently deductible under section 162 * * * but rather are 'start-up' or 'pre-opening' expenses." See Woody v. Commissioner , T.C. Memo. 2009-93, slip op. at 9-10 (citing Hardy v. Commissioner , 93 T.C. 684, 687-688 (1989), aff'd in part, remanded in part , 1990 U.S. App. Lexis 19670 (10th Cir. Oct. 29, 1990)), aff'd , 403 F. App'x 519 (D.C. Cir. 2010). Startup expenses, although not deductible during the pre-opening phase, may generally be deducted or capitalized and deducted over time upon a taxpayer's becoming actively engaged in business pursuant to section 195. Sec. 1.195-1T, Temporary Income Tax Regs., 73 Fed. Reg. 38910 (July 8, 2008).

A license sounds like a 197 intangible and a credential sounds like a non-deductible personal expense. If so, the former would start its 15-year amortization when the trade or business commences since it is an asset, but not under section 195.

Interesting lesson here. Took Coddington to point out that OP's premise (that it's a 195 expenditure) is flawed. The rest of us just accepted it and ran from there.

Is there a de minimis rule that would allow expensing?

Getting a CPA license is a credential fee. Is it personal?