Question

Egret Corporation, a calendar year C corporation, was formed on March 6, 2018, and opened for business on July 1, 2018. After its formation but prior to opening for business, Egret incurred the following expenditures. Accounting $ 7,000 Advertising 14,500 Employee payroll 11,000 Rent 8,000 Utilities 1,000 What is the maximum amount of these expenditures that Egret can deduct in 2018 ? Round to nearest dollar.

Answer 1

Solution: $6,217

Working:

At the taxpayer election, such expenditures are deductible in the similar approach as organizational expenditures. Therefore, Eager is allowed to deduct up to $5,000 as immediately expensed (subject to the phase-out) and the remaining balance to be amortized over a 80 months period.

Accounting	7,000
Advertising	14,500
Employee payroll	11,000
Rent	8,000
Utilities	1,000
	41,500

In 2018 deduction of Egret's for start up expenditures equals $6,217 computed as below

= {$5,000 + [($41,500 - $5,000) / 180 months * 6 months]}

= {$5,000 + [($36,500) / 180 months * 6 months]}

= {$5,000 + [$202.78 * 6 months]}

= {$5,000 + [$202.78 * 6 months]}

= {$5,000 + $1,216.78}

= $6.217