Question

3. Mr. Z, a calendar year taxpayer, opened a new car wash. Prior to the car wash's grand opening on October 8, Mr. Z incurred various start-up expenditures (rent, utilities, employee salaries, supplies, and so on). In each of the following cases, compute Mr. Z's first-year deduction with respect to these expenditures. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) a. The start-up expenditures totaled $4,750. b. The start-up expenditures totaled $27,320. The start-up expenditures totaled $53,120. d. The start-up expenditures totaled $88,380. c. a. { $4,750 b. Deduction Deduction Deduction Deduction c. d. a. Mr.z can deduct the entire $4,750 Start-up expenditores.

Answer 1

THERE MORE THAN ONE QUESTIONS , HENCE ONLY FIRST QUESTION ANSWRED:

Ans-1

As per Rule If the total startup spend doesnot exceed $ 50000 then -

• First year deduction is upto $ 5000
• Rest amortized over 15 years

In case amount is more than $ 50000 then every $ in excess reduces the limit of $ 5000 meaning at $ 55000 only amortization over 15 year period is applicable.

Amortization starts from the month of business starts operating.

Using the above principle the deductions for the listed scenarios will be as tabulated hereunder:

Ref a Scenario Scenario Description Deduction Startup expenditure totalled $4,750 Full in first year of business b Startup expenditure totalled $ 27,320 $ 5372 in first year and then 1488 each year Startup expenditure totalled $ 53,120 $ 2734 in first year and then 3416 each year Startup expenditure totalled $ 88,380 $ 1473 in first year and then 5892 each year с Note-1 Note-2 Note-3 d Note-1 Flat deduction Balance 15 year amortization - per year Share in current year for 3 months Total Deduction in first year 5000A 22320 B=27320-5000 1488 C = B/15 372 D = C/4 5372 E=A+D 53120A Note-2 Total expenditure Excess over 50000 Base deduction Balance for 15 year amortization Per Year amortization 3 months amortization Total deduction in first year 3120 B = A- 50000 1880 C = 5000-B 51240 D=A-C 3416 E = D/15 854 F=E/4 2734 G=C+F Note-3 Total expenditure Base deduction Balance for 15 year amortization Per Year amortization 3 months amortization Total deduction in first year 88380A 0B - Expense > $ 55000 88380 C=A-B 5892 D=C/15 1473 E=D/4 1473 F=B+E