Question

Required Information The following information applies to the questions displayed below) Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: (Leave no answer blank. Enter zero if applicable. Expense Attorney fees for articles of incorporation March 1 - March 30 wages March 1 - March 30 rent Stock issuance costs April 1 - May 30 wages Date Amount February 10 $40,000 March 30 6,400 March 30 2,800 April 1 25,000 May 30 16,000 c. What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 (not including the amount determined in part b)? (Round Intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) Start-up costs amortized Organizational expenditures amortized

Answer 1

Step By Step answer in relates to Start Up and Organization cost - Allowable as per Tax rule as well as Amortized amount

Start Up cost			Organization cost - mainly those cost incurred to
Include Initial Set up cost with			build up Organization .
Location site , design,Legal Work,			This cost include Legal , Professional Fees
Salary cost , Rent / Lease cost			Attorney to draft a Corporate Agreement , Article Of Association
As per definition , only two Nature of
cost as below treated as
Start Up

	Start Up		Organization Expenditure
Wages($)	6400
Rent($)	2,800
Attorney Fees($)			40,000
Total	9,200		40,000

	Start Up		Organization Expenditure
Wages($)	6400
Rent($)	2,800
Attorney Fees($)			40,000
Total	9,200		40,000	(a)
Both amount is Less than $ 50,000
Immediate Expenses
	5,000		5,000	(b)
Remaining Expenditure($)
9200-5000	4,200		35,000	(a-b)=c
Recovery period ( as per U S code)	180		180	d
(15 years)
Monthly Amortization	23		194	(c/d)
('4200/180)
1st Year business Period	9		9
( April to Dec)
Amortized amount $	210		1,750

Always remember , both above expenses are with in Max limit-$50,000

Immediate expenses amount  

Start up cost - $ 9,200 and Organization cost -$ 40,000 ( as per definition explained as above )

While calculating start up cost - we need to consider first Wages to paid to set up company ( not recurring one)

Important Section to solve this Question

As per Start up taxable law ( US code 195 - Start up Expenditure )
$5000, reduced ( but not below Zero) by the amount
by which such start up expenditure exceed $ 50,000
The reminder of such start up expenditure - allowed
as a deduction over 180 months

As per above code , Immediate Expenses would be $ 5000 n relates to Start up and Organization expenses .