Question

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?

Multiple Choice

• None of the choices are correct

• $2,000

• $5,000

• $10,000

• $0.

Answer 1

The organizational and start up costs can be deducted immediately upto a maximum of $5,000 when the amount is less than $50000.

When the organizational and start up costs exceed $50000, the $5,000 limit is reduced by the amount by which organizational and start up costs exceed $50000, with the reduction being $0 at $55,000.

In the given case, the total expenditure is $63,000 which is above the phase out limit of $55,000.

So none of the organizational and start-up costs can be immediately deducted. The expenditure must be amortized over a period of 180 months.

$0 is correct option.