Question

Mr. Z, a calendar year taxpayer, opened a new car wash. Prior to the car wash’s grand opening on October 8, Mr. Z incurred various start-up expenditures (rent, utilities, employee salaries, supplies, and so on). In each of the following cases, compute Mr. Z’s first-year deduction with respect to these expenditures. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

A) The start-up expenditures totaled $4,920. B) The start-up expenditures totaled $33,440. C) The start-up expenditures totaled $52,780. D)The start-up expenditures totaled $94,500.

A) deducction =

B) deduction

C) deducton D) DEDUCTION

Answer 1

A) Mr. Z can deduct the entire $4,920 Start-up expenditures.

B) Mr. Z can deduct $5000 of the expenditure and must capitalize the $28,440 remainder. he can elect the capitalized cost over 180 months at the rate of $158 per month.First year amortization would be $474(3 months x $158), and Mr. Z's first-year deduction would be $5,474.

C) Mr. Z can deduct $2,220 of the expenditures ($5000 - $2780 excess expenditures over $50000) and must capitalize remainder $50,560 remainder. He can elect to amortize the capitalized cost over 180 months at the rate of $280.88. First-year amortization would be $842.67(3 months x $280.88) ) and Mr. Z's first year deduction would be $3062.67($2,220+$842.67)

D) Mr. Z must capitalize $94500 expenditure. He can elect to amortize the capitalized cost over 180 months at the rate of $525 per month. MR. Z's first year deduction would be equal to the $1575 first year amortization (3 months x $525).