A C Corporation incurs $60,000 in organizational expenditures in its first year. What is the maximum deduction in the first year?

Answer options:

$5,000

$3,667

$4,000

$60,000

How to approach this question

Rule: $5,000 immediate expensing. Phase-out $ for $ over $50,000. Remainder amortized over 180 months. <br/>Cost: $60k. Excess over $50k: $10k. <br/>Immediate deduction: $5k - $10k = $0. <br/>Amortization: $60k / 180 months = $333.33/mo. <br/>Year 1 (12 mos): $4,000.

Full Answer

C.$4,000✓ Correct

IRC §248. Immediate expensing of $5,000 is phased out when costs exceed $50,000. Since costs are $60,000, the $5,000 is fully eliminated. The entire $60,000 is amortized over 180 months (15 years). $60,000 / 15 = $4,000 per year.

Common mistakes

Taking the $5,000 deduction despite the phase-out.

Question 48 All questions Question 50

Practice the full CPA TCP Practice Exam 2

68 questions · hints · full answers · grading

More questions from this exam

Q01In Year 1, an executive receives an Incentive Stock Option (ISO) to purchase 1,000 shares of stoc...Medium Q02A taxpayer is calculating their Alternative Minimum Tax (AMT) liability for Year 1. They claimed ...Medium Q03On January 1, Year 1, a corporation lends $500,000 to a shareholder at a 0% interest rate. The Ap...Hard Q04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. In Year 1, they ear...Medium Q05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. The standard de...Medium

View all 68 questions →