Question

Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including the portion of the expenditures that are amortized over 180 months) this year in the following alternative scenarios: (Leave no answer blank. Enter zero if applicable.)

a. She incurred start-up costs of $4,400. ANSWER: $4,400

b. She incurred start-up costs of $46,000. ANSWER: $5,000

c. She incurred start-up costs of $54,100.

d. She incurred start-up costs of $66,000.

e. How would you answer parts (a) through (d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)?

Answer 1

Answer : Calculation of Deduction of Amount under following alternatives :

(a.) Below is the table showing startup cost

Limit for the maximum Startup cost deduction (a.)	5000
Start up cost incurred (b.)	4400
Limit of phase out as given (c.)	50000
Phase out immmediately (d.) = (b.) - (c.)	0
Startup cost allowed to expensed immediately Lower of (b.) or [(a.) - (d)]	4400

(b.)  Below is the table showing startup cost

Limit for the maximum Startup cost deduction (a.)	5000
Start up cost incurred (b.)	46000
Limit of phase out as given (c.)	50000
Phase out immmediately (d.) = (b.) - (c.)	0
Startup cost allowed to expensed immediately Lower of (b.) or [(a.) - (d)]	5000

(c.)  Below is the table showing startup cost

Limit for the maximum Startup cost deduction (a.)	5000
Start up cost incurred (b.)	54100
Limit of phase out as given (c.)	50000
Phase out immmediately (d.) = (b.) - (c.)	4100
Startup cost allowed to expensed immediately Lower of (b.) or [(a.) - (d)]	900

(d.)  Below is the table showing startup cost

Limit for the maximum Startup cost deduction (a.)	5000
Start up cost incurred (b.)	66000
Limit of phase out as given (c.)	50000
Phase out immmediately (d.) = (b.) - (c.)	16000
Startup cost allowed to expensed immediately Lower of (b.) or [(a.) - (d)]	0

(e.) The answer for the above will remain same if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs.