Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a...

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, 2020.

Stanford incurred the following expenses:

Total investigation costs related to the restaurant	$29,750
Total investigation costs related to the bakery	51,300

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 2020 for investigation expenses?
$

Expert Solution

Ans: The maximum amount Stanford can deduct in 2020 for investigation expenses is $4229.

Explanation:

For Restaurant - Stanford does not own the Restaurant business and therefore, he will not be able to deduct investigation costs in respect of Restaurant.

Investigation costs related to restaurant - $29750 is not deductible

For Bakery - Stanford has purchased the bakery it means he is not in the business of bakery and therefore, whole of the costs of investigation i.e., $51300 is not deductible. Stanford can deduct investigation cost related to bakery $5000 maximum. $5000 deduction is reduced dollar to dollar if the expenses is in excess of $50000. Here, excess of $50000 is $1300 ($50000-$51300). this $1300 will reduced the $5000 amount of maximum deduction.

the amount of deduction will be $3700 ($5000-$1300)

Balance expense is $47600 ($51300 - $3700). This can be amortized over 180 months starting in the month in which business begins i.e November 1, 2020.

Amortization amount per month = $47600 / 180 = $264.44

amortization for 2020 (November 1, 2020 to December 31, 2020) = $264.44 x 2 months = $529

Total deduction will be $4229 ($3700 + $529)

ekkarill92 answered 2 years ago

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