When you're in the market for a new business, you can spend thousands of dollars running ads, traveling around the country to look at companies, and hiring auditors to evaluate several prospects. Yet if your search is unsuccessful, the Internal Revenue Service says that you cannot deduct expenses for a general search or a preliminary investigation.

Say that you do find the company of your dreams, and you incur further costs, such as legal fees -- and then the deal falls through. You can deduct the legal and other expenses that are specific to the negotiation, but you still get no deduction for those general search expenses.

But there is a way to assure a 100% deduction for all expenses. The answer is to incorporate. Then buy stock from your new corporation equal to the amount of the anticipated search; have the corporation, instead of you personally, incur the expenses of looking for the new business. If you find what you want and buy the operating assets, you have a corporation set up and ready to go. If you don't find what you want, you will be able to get a personal deduction for the expenses incurred by the corporation. How? Liquidate the corporation. A little-known section of the Internal Revenue Code, Section 1244, allows you an ordinary deduction, rather than a capital loss, on your stock loss in amounts up to $50,000 for a single taxpayer or $100,000 for a husband and wife filing a joint return. (For another use of 1244 stock, see "Attracting Capital," below.)