Question

Isabella traveled to a neighboring state to investigate the purchase of an interior design firm. Her expenses included travel, legal, accounting, and miscellaneous expenses. The total was $51,000. She incurred the expenses in January and February of 2018. In each of the following scenarios, what can Isabella deduct in 2018?

In your computations, round the per-month amount to the nearest dollar. If an amount is zero, enter "0".

a. Isabella was in the interior design business and did not acquire the interior design firm.
$

b. Isabella was in the interior design business. She acquired the interior design firm and began operating it on August 1, 2018.
$

c. Isabella did not acquire the interior design firm and was not in the interior design business.
$

d. Isabella acquired the interior design firm but was not in the interior design business when she acquired it. Operations began on May 1, 2018.
$

Answer 1

a. $51000

Isabella is into the same business as that of investigated i.e. interior design. In this case whole investigation expense is deductible in the year it is incurred. irrespective of fact that new business is acquired or not.

b. $51000

Isabella is into the same business as that of investigated i.e. interior design. In this case whole investigation expense is deductible in the year it is incurred. irrespective of fact that new business is acquired or not.

c.$0

If the taxpayer is not into the similar business and the firm is not acquired none of the expenses incurred are deductible.

d. since Isabella is not in the interior design business she can deduct $5,000 immediately if total expenses are upto $50000 and rest of the balance is amortized over period of 180months.anything in excess of $50000 will be deducted from first years benefit of $5000.in our case (51000-50000) $1000 in excess of 50000$ will be deducted from $5000 benefit in first year so $ 4000 is an immediate deduction

remaining $47000 (51000-4000) will be amortized over period of 180months = 47000/180=261.11 $ permonth.

so deductible amount = $4000 + 2088.88$ (261.11 * 8months 1st MAY to 31st december) = $6088