ExpertHard1 markMultiple Choice
CPA · Question 57 · Area V: Entity Taxation
A C corporation incurred $60,000 of organizational costs in its first year of operations. What is the maximum deduction the corporation can take for these costs in its first tax year?
A C corporation incurred $60,000 of organizational costs in its first year of operations. What is the maximum deduction the corporation can take for these costs in its first tax year?
Answer options:
A.
$5,000
B.
$3,667
C.
$4,000
D.
$60,000
How to approach this question
Org Costs: $5k expense limit. Phase-out > $50k. Remainder / 180 months.
Full Answer
C.$4,000✓ Correct
C
The $5,000 immediate expensing limit is reduced by the amount by which organizational costs exceed $50,000. Here, costs are $60,000 ($10,000 excess). The $5,000 deduction is fully phased out ($5,000 - $10,000 < 0). The entire $60,000 is amortized over 180 months. $60,000 / 180 = $333.33/mo. x 12 = $4,000.
Common mistakes
Taking the $5,000 deduction despite the phase-out.
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