Question

Exercise 10-19 (Algorithmic) (LO. 4)

Candlewood LLC started business on December 1, and it adopted a calendar tax year. During the year, Candlewood incurred $10,950 in legal fees for drafting the LLC's operating agreement and $5,475 in accounting fees for tax advice of an organizational nature, for a total of $16,425 of organizational costs. Candlewood also incurred $9,800 of preopening advertising expenses and $43,700 of salaries and training costs for new employees before opening for business, for a total of $53,500 of startup costs. The LLC wants to take the largest deduction available for these costs.

If required, round any division to six decimal places and use in subsequent computations. Round your final answers to the nearest dollar.

How much can Candlewood deduct as organizational expenses? As startup expenses?
The LLC may deduct $ as organizational expenses and $ as startup expenses.

Answer 1

Answer:

The answer is $5,444 and $3,552 (rounded off)

The LLC shall deduct $5,444 ($5000+$444) of the organizational costs.

This deduction is the sum of the $5,000 allowed deduction and

the $444 [($16,425 - $5,000) x 7/180] amortization deduction for the $11,425 of organizational costs that exceed the $5,000 base amount.

Further, the LLC shall deduct $3,522 ($1,500 + $2,022) of the startup costs. This deduction is the sum of the following:

• $1,500, which is the $5,000 permitted deduction reduced by the $3,500 ($53,500 - $50,000) amount by which the startup costs exceed $50,000.and

• $2,022 ($52,000 x 7/180) amortization of the remaining $52,000 ($53,500 - $1500) of startup costs for seven months.