Question

In May of the current year 2020, Aleksander began investigating the possibility of opening an law firm. From May through July he spent $1,200 on a market survey, $3,600 in consulting fees to find the best location and $2,000 in professional fees setting up an accounting and inventory system. Although he had never run his own business before, on August 1 he opened his doors for business. What is the maximum amount of deduction for the current year attributable to these expenditures? A) $0 B) $5,050 C) $5,080 D) $6,800

Answer 1

Answer:-B) $5,050

Reason:-

$1,200 on a market survey is an eligible start up cost as it is related with creating a business

$3,600 in consulting fees to find the best location is an eligible start up cost as it is related with creating a business

$2,000 in professional fees setting up an accounting and inventory system. is an eligible start up cost as it is related with opening the business

Total startup cost = $6,800

Deductions are allowed upto a limit of $5,000 only. So the balance $1,800 should be amortized over 180 months. Thus per month $10. for 5 months (from August to December) = $5,000 + $50 = $5050