Question

In the current year the GHI partnership incurs $60,000 of expenses that qualified as organizational expenses. GHI is a calendar year partnership and begins business in November of the current year. How much is GHI’s deduction of the organizational expenses in the current year, assuming it elects the maximum of each?

a. $0

b. $5,000

c. $10,000

d. None of the above

Answer 1

If you have more than $50,000 in expenses, you must reduce the maximum amount ($5,000) by $1 for each $1 over $50,000 in expenses. Therefore, if the expense is more than $55,000, all of your expenses must be amortized over the 180-month period

In the given question , $60000 of expense has been incurred

Because the expenses exceed $60,000, she must reduce the initial year deduction by $1 for every $1 over $50,000. Thus, the $5,000 amount is reduced to 0 (because the amount works out to be 10000 which is more than 5000) . The monthly amortization amount is $333 ($60,000/180), so the first year amortization deduction is $667 [333*2months].

Answer is d. NONE of the above.