Question

Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2018.

Stanford incurred the following expenses:

Total investigation costs related to the restaurant $47,500 Total investigation costs related to the bakery 52,700

If required, round any division to two decimal places and use in subsequent computation. Round your final answer to the nearest dollar.

What is the maximum amount Stanford can deduct in 2018 for investigation expenses?

Answer 1

As Stanford didn't acquired restaurant business, so its investigation expenses of $47,500 are considered as non-deductible personal expenditure.

As Stanford acquired bakery business, so cloild deduct its investigation expenses as below-

As per Sec. 195 - A corporation could deduct up to $5,000 of business startup (includes investigation expenses) costs. That $5,000 deduction is reduced dollar for dollar (but not below zero) by the cumulative amount of startup costs that exceeds $50,000. The balance startup costs could be deducted on pro-rata basis over a 15-year period, beginning from the month in which that business actively started/conducted.

Active conduct of a business generally considered when corporation begins the conduct of operations means it is in a position to start generating revenue.