Yes, you can amortize startup costs GAAP. The GAAP requirements for amortizing startup costs are explained in Accounting Standards Codification (ASC) 720-10-25-6. To amortize startup costs, a company must first determine if the costs are eligible to be amortized. Eligible costs are those that are incurred in creating or acquiring an active trade or business. Costs that do not meet this criteria, such as interest expense or research and development costs, cannot be amortized.
Once a company has determined that its startup costs are eligible for amortization, it must then determine the appropriate amortization method. The three methods allowed under GAAP are the straight-line method, the effective interest method, and the constant yield method. The straight-line method is the simplest and most commonly used method. Under this method, startup costs are evenly amortized over a specified period of time, not to exceed 180 months.
The other two methods, the effective interest method and the constant yield method, are more complex and are generally used only when the straight-line method does not accurately reflect the economic reality of the startup costs. Under the effective interest method, amortization is based on the effective interest rate of the startup costs. The constant yield method amortizes the startup costs using a single yield rate that is applied to the remaining balance of the costs each period.
The election to amortize startup costs must be made at the time the costs are incurred. Once the election is made, it cannot be changed. The amortization of startup costs begins in the period in which the active trade or business begins.
If you have any further questions about amortizing startup costs GAAP, I would encourage you to speak to your accountant or financial advisor.
