ExpertMedium1 markMultiple Choice
CPA · Question 49 · Area III: Entity Tax Planning
A C Corporation incurs $60,000 in organizational expenditures in its first year. What is the maximum deduction in the first year?
A C Corporation incurs $60,000 in organizational expenditures in its first year. What is the maximum deduction in the first year?
Answer options:
A.
$5,000
B.
$3,667
C.
$4,000
D.
$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.
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