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	$34,750
Total investigation costs related to the bakery	53,800

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

The maximum amount Stanford can deduct in 2019 for investigation expenses

As can be seen Stanford does not acquire the restaurant, the $34,750 is not deductible.
Further, he is not eligible to deduct all of the $53,800 related to the investigation of the bakery because he is not in this business already. Since he purchased the bakery, the maximum deduction (before amortization) of the $53,800 is $5,000.
Further the $5,000 deduction will be reduced for those expenses incurred in excess of $50,000 i.e.

$53,800 - 50,000 = $3,800 reduction.

So the net deduction will be

$5,000 - $3,800 = $ 1,200 deduction.

The remaining expenses of $ 52,600 ($53,800 - 1200) can be amortized over 180 months commencing from the month in which the business begins i.e. November.

$ 52,600/180 months = $292 Approximately per month.
$ 292 × 2 months = $584

The total deduction is $ 1,784($1200 + $ 584)