Question

Please explain why:

Stork Partnership incurred $15,000 of organizational costs and $75,000 of startup costs in 2016. Stork may deduct $5,000 each of organizational and startup costs, and the remaining costs ($10,000 of organizational costs and $70,000 of startup costs) may be amortized over 180 months.

Answer 1

For organizational costs, $5,000 is allowed to write-off in 1st year (reduce $ for $ for total costs > $50,000). Balance is amortized over 180 months including the first year.

So, $5,000 is deducted in the first year and the balance $10,000 is amortized over 180 months

For Start up costs $5,000 is allowed to write-off in the first year (reduce $ for $ for total costs > $50,000). Balance is amortized over 180 months including the first year.

As the organizational costs exceeded $50,000, no deduction is allowed and $75,000 is amortized over 180 months.