Question

ASSUME ALL CORPORATIONS ARE C CORPORATIONS
J and J incurred the following organizational expenses prior to starting operation in June 2014.:
temporary director meetings= 12,000
accounting fees and legal fees related to incorporation=5,000
commissions paid for issuance of stock=30,000
What is the maximum allowable deduction for organizational expenses in 2014?

Answer 1

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Organizational expenditures include the following:
-Legal services incident to organization
-Necessary accounting services
-Expenses of temporary directors and of organizational meetings of directors and shareholders
-Fees paid to the state of incorporation
Expenditures connected with issuing or selling shares of stock or other securities or with the transfer of assets to a corporation do not qualify
-Such expenditures reduce the amount of capital raised and are not deductible at all
Allowable Organizational expenditures
Expenditures	Amount	Remarks
Temporary director meetings	12,000.00	This is allowable as per conditions stated above.
Accounting fees and legal fees related to incorporation	5,000.00	This is allowable as per conditions stated above.
Commissions paid for issuance of stock	-	This is not allowable as per conditions stated above.
Total	17,000.00
A corporation may elect to amortize organizational expenses over a 180-month period beginning with the month in which the corporation begins business.
A special exception allows the corporation to immediately expense the first $5,000 of these costs only if the total expenses exceed 50,000.
As the total expenditure does not exceed 50,000 so these expense should be amortized over 180 months.
I am assuming that the company follows calendar year-
Total Organizational expenditures	17,000.00	A
Number of months	180.00	B
Monthly amortization	94.44	C=A/B
Business started in June 2014.
Months remaining in 2014 (June to December)	7.00	D
The maximum allowable deduction for organizational expenses in 2014	$     661.11	E=C*D