Question

Juliette formed a new business to sell sporting goods this year. The business opened its door to customers on June 1. Determine the amount of start up costs Juliette can immediately expense (not including the portion of the expenditure that are amortized over 180 months) this year in the following alternatives scenarios
(A) she incurred start up costs of 4500

(b) she incurred start up costs of 46250.

(c) she incurred start up costs of 54250.

(d) she incurred start up costs of 66250.

(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 expenditure rather than start up costs (how much of the organizational expenditure would be immediately deductible).

Answer 1

• Law allows deduct $5,000 in business startup costs and $5,000 in organizational costs (for partnership /corporation), but only if your total startup costs are $50,000 or less.
• If your startup costs for either area exceed $50,000, the amount of allowable deduction will be reduced by that $ amount.
• If your startup costs are more than $55,000, the deduction is completely eliminated.

A) Start Up cost = $4500 =allowable expenses in first year = $4500 (lower of $ 5000 or actual expenses incurred)

B) Start Up cost = $46250 =allowable expenses in first year = $5000 (lower of $ 5000 or actual expenses incurred)

C)Start Up cost = $54250 =allowable expenses in first year = $4500 (5000-(excess expenses incurred over 50000 ie. 4250) =750

D)Start Up cost = $66250 =allowable expenses in first year = 0 (if expense incurred over 55000 , no first year deduction is available, only amortization is available)

Situation 2

Corporation or partnership firm

Actual expenses incurred =4500 allowable 4500(lower of actual expenses incurred / $5000