ExpertHard1 markMultiple Choice
CPA · Question 58 · Area V: Entity Taxation
A C Corporation incurs $60,000 of organizational costs in its first year of operations. What is the maximum deduction for organizational costs in the first year?
A C Corporation incurs $60,000 of organizational costs in its first year of operations. What is the maximum deduction for organizational costs in the first year?
Answer options:
A.
$5,000
B.
$3,667
C.
$4,000
D.
$5,333
How to approach this question
1. Calc Excess over $50k: $60k - $50k = $10k. 2. Reduce $5k limit: $5k - $10k = $0 immediate expensing. 3. Amortize Remainder: $60k / 180 months = $333.33/mo. 4. Annual: $333.33 * 12 = $4,000.
Full Answer
C.$4,000✓ Correct
C
IRC §248 allows $5,000 immediate expensing, reduced dollar-for-dollar by costs exceeding $50,000. Excess = $10,000. Immediate deduction = $0. The entire $60,000 is amortized over 180 months. $60,000 / 180 = $333.33 per month. For a full year: $4,000.
Common mistakes
Taking the $5,000 deduction despite the phase-out.
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