Question

Toni Morrison Corporation begins business on March 1, 2019. The corporation reports startup expenditures of $56,000 all incurred last year. Determine the total amount that Toni Morrison Corporation can elect to deduct in 2019 (round your answer)

Answer 1

Under § 195, taxpayer is eligible for deduction of startup expenditure for the taxable year in which business begins.

In the given case,

Toni Morrison Corporation begins business on March 1, 2019. The corporation reports startup expenditures of $56,000.

Therefore corporation is eligible for deduction the lesser of the following:-

a) Actual amount of startup expenditure incurred, or

b) $5,000, reduced by the amount by which startup expenditure exceed $50,000 (but can reduce below zero).

The remaining balance of startup expenditure will be deducted over 180 months starting with the month in which business begins.

Total startup expenditure is $ 56,000.

The start up expenditure allowed is calculated as follows:-

Allowed in the current year = $5,000 -$6,000(56,000-50,000)=$0 (as it can not reduce below zero).

Remaining expenditure allowed over 180 months = ($56,000 - $0)/180 months=$311.11 per Month

In 2019, the business starts from March 1, 2019, therefore startup expenditure for 10 months will be allowed in 2019 (i.e. Mar to Dec 19).

Total startup expenditure allowed = $0+($311.11 per months*10 months)

=$3,111.11=$3,111((rounded to nearest dollar).

The total amount of startup expenditures that it may deduct in 2019 is $3,111.

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