ExpertHard1 markMultiple Choice
CPA · Question 38 · Area V: Entity Taxation
A C Corporation incurs $55,000 in organizational costs to start the business. It begins business on July 1, Year 1. What is the maximum deduction for organizational costs in Year 1?
A C Corporation incurs $55,000 in organizational costs to start the business. It begins business on July 1, Year 1. What is the maximum deduction for organizational costs in Year 1?
Answer options:
A.
$5,000
B.
$1,667
C.
$1,833
D.
$3,667
How to approach this question
1. Calculate Immediate Deduction: $5,000 - (Total Costs - $50,000). If <0, then 0. 2. Amortize the REST (Total - Immediate) over 180 months. 3. Multiply by months in service.
Full Answer
C.$1,833✓ Correct
C
IRC §248 allows $5,000 immediate expensing, phased out dollar-for-dollar for costs exceeding $50,000. Excess = $5,000. Immediate deduction = $5,000 - $5,000 = $0. The full $55,000 is amortized over 180 months. Monthly = $305.55. For 6 months = $1,833.
Common mistakes
Taking the $5,000 deduction despite the phase-out.
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