What are organizational expenditures? How are they treated for tax purposes? What are start-up expenditures? How...

What are organizational expenditures? How are they treated for tax purposes? What are start-up expenditures? How are they treated for tax purposes?

Solutions

Expert Solution

1.Before starting any business, both start up and organizational costs are incurred.

2.Organizational cost :

These are the costs for organising or facilitating a business in order that it runs ahead smoothly. Examples of organizationsl costs are : cost incurred on legal services, costs incurred in getting prepared MOA & AOA (Business Charter), arranging meetings etc. These costs are usually amortized for tax purposes. Normally these costs are amortized over a period of 5 years but it again depends on the laws prevailing in different countries. Sometimes, it may also happen that costs incurred are not so material & hence can be directly charged off to Profit and loss account.

3.Startup Costs :

These are the costs incurred with an idea of creating the business. They start from the very basic like planning, analysing, budgeting etc. For example: arranging for training of personnel, advertising about business etc. Even these costs can be amortized over a period of 5 years or over a reasonable period as the company may deem fit.

4. In tax laws of some country, for tax purposes, certain specific deductions are given. Like say for example, in a country where any such organisational or start up costs are incurred for around say 3 preceding years before starting business operations, they get full deduction of such costs in the first years ( except for a few items ).

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

How do corporations treat start-up expenditures?

Some items are treated differently for accounting purposes than they are for tax purposes. For the following item: Es

Some items are treated differently for accounting purposes than they are for tax purposes. For the following item: Estimated future warranty costs, indicate whether it is considered a permanent difference or a temporary difference. For a temporary difference, indicate whether it will create a deferred tax asset or a deferred tax liability.

Listed below are items that are treated differently for accounting purposes than they are for tax...

Listed below are items that are treated differently for accounting purposes than they are for tax purposes. (i) Explain the difference between a temporary difference and a permanent difference. (ii) Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities. 1. An accelerated depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets....

1. Though they may elect a different structure, for tax purposes, LLCs are typically treated as...

1. Though they may elect a different structure, for tax purposes, LLCs are typically treated as A) nonprofit organizations. B) hybrid entities. C) corporate tax entities. D) pass-through entities. 2. Han wants to start a personal training business. He should choose a sole proprietorship entity if he seeks A) limited liability. B) perpetual existence for the new company. C) the ability to raise capital by selling equity in the business. D) the ability to avoid management conflict. 3. Because it...

What are tax preferences and tax expenditures? What are the major justifications for tax preferences? What...

What are tax preferences and tax expenditures? What are the major justifications for tax preferences? What are the economic consequences of tax preferences? How can tax expenditures be used to evaluate the desirability of tax preferences? Why do tax expenditures overestimate the gains in revenue that would come about from eliminating tax preferences? Explain how tax preferences distort prices and cause losses in market efficiency.

what expenditures are and how expenditures are classified

6. LO.4 What types of expenditures might a new partnership incur? How are those costs treated...

6. LO.4 What types of expenditures might a new partnership incur? How are those costs treated for Federal tax purposes? In the chart below, for each expenditure listed, select the tax treatment for that expenditure and the applicable Code section requiring this treatment

Think up a company you would like to start. Then, choose an organizational type. Assume the...

Think up a company you would like to start. Then, choose an organizational type. Assume the company will start on January 1st, 2020. Create 10 transactions for the year 2020. Please make sure you use entries which affect equity, revenue, expenses, assets and liabilities. You can draw the "T" accounts or you can describe the affect of the transactions on the financial statement. Then, show the income statement, the balance sheet and the statement of equity for the year ending...

Describe how goodwill amortized for tax purposes for not for book purposes (i.e. no impairment) leads...

Describe how goodwill amortized for tax purposes for not for book purposes (i.e. no impairment) leads to temporary book-tax differences? Why does Congress provide the dividends received deduction for corporations receiving dividends?

Discuss how intercompany transfers should be treated for consolidation purposes. NB: make reference to the related...

Discuss how intercompany transfers should be treated for consolidation purposes. NB: make reference to the related IFRS’s an IAS’s in your discussion.

Subjects