Question

Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2019.

Stanford incurred the following expenses:

Total investigation costs related to the restaurant	$32,000
Total investigation costs related to the bakery	52,700

If required, round any division to two decimal places and use in subsequent computation. Round your final answer to the nearest dollar.

What is the maximum amount Stanford can deduct in 2019 for investigation expenses?

Answer 1

Stanford is not in restaurant business and does not acquire the restaurant, the amount of investigation of $32,000 is not deductible.

Amount of $52,700 for investigation of the bakery cannot be deducted as he is not in business of bakery. However he has purchased a bakery. Thus the maximum deduction of the $52,700 is calculated as below:

Eligible deduction of $5,000 is reduced dollar for dollar for expenses in excess of $50,000.

$52,700 - $50,000 = $2,700 reduced

$5,000 - $2,700 = $2,300 deduction available

Remaining amount of $50,400 ($52,700 - $2,300) will be amortized over for next 180 months beginning from November.

$50,400 / 180 months = $280 per month

$280 * 2 months = $560

Total deduction = $2,860 ($2,300 + $560)