Question

(1) Jamie started a new business (a corporation) this year. She incurred organizational costs of $10,000 and start-up costs of $53,000. How much of the organizational and start-up costs can be immediately deducted (excluding amounts amortized over 180 months) for the year?

(2)Fatima is a calendar-year taxpayer who operates a business. In December 2019, Fatima made the following payments:

Indicate the amount of these payments that she may deduct in 2019 under both the cash method of accounting and the accrual method of accounting.

a) $4,720 for interest on a loan; the interest accrued evenly from September 1, 2019, through April 30, 2020.

Answer 1

1.

Organizational and start-up costs that can be immediately deducted in the year is $5,000. But deduction of $5,000 for startup cost which will be reduced $ by $ for total cost > $50,000.

Organisational cost deduction = $5,000

Startup cost = $5,000 - $3,000 = $2,000

2.

Interest cost need to be allocated to the year it belongs being it cash method or accrual method. Hence, Fatima will be able to deduct interest cost for the period from september 1st, 2019 to December 31st, 2019.

Total interest paid = $4,720 for 8 months.

Persiod covered under 2019 = 4 months

Amount to be deducted in 2019 for both accrual method and cash method = $4,720 / 8 months x 4 months

= $2,360