[hopefulcpa28]

So Becker says,

$5000 for start up costs & $5000 for organization expenditures are deductible.

Krisit, a newly organized corporation was formed on June 30, year 1, and began doing business on July 1, year 1, and incurred the following expenses:

Legal fees for drafting corporate charter $15,000

Fees paid for accounting services $ 5,000

Fees paid to state of incorporation $ 3,000

Cost of selling shares of stock $10,000

What is the amount she can deduct?

Answer given by Becker is $5,600

15000+5000+3000 = 23000.

23000 – 5000 (shouldn’t that be 10,000?) = 18000

18000/180 = 100 x 6=600

5000+600 = 5600.

I’m confused as to why it’s $5600 and not $10,433 (23,000 – 10,000 = 13000. (13000/180) x 6).

[Anonymous]

I'm not at home with Becker in front of me, but I'm pretty sure one can just deduct $5000. Maybe they meant start-up costs and organizational expenses together can be deducted $5,000, but not each one separately (to total $10,000) (as far as I know). There's a rule if the expenses are over $50,000, but that's not the case here.

[jeff]

Tax law changed for Start-up costs in 2010.

[jeff]

From REG NINJA:

2010 BUSINESS START-UP COSTS

– Deduct up to $10,000 of business start-up costs

– Reduced dollar-for-dollar by amount over $60,000

– Remaining costs are amortized

[Anonymous]

Sorry for my mistake, hopefulcpa28. I didn't realize that I got my info from a pre-'10 source.

I don't know why Becker's answer is that way, then. Maybe it's a mistake? Maybe they have an update for that question online (they have updates every so often)?

[Yvonne570]

There's been a very critical correction in this area:

Organization costs: $5000/then amortize SL @ 180 up to $50000

Start up costs: $10000/then amortize @ 180 up to $60000

AUD - Passed:)
FAR - Passed:)
REG - Retake TBD
BEC - Missed by 3 points Retake TBD

[Anonymous]

Individuals- $10,000 write off, but once costs exceed $60,000, you lose $1 on the dollar on that write off.

Corporations- $5,000 write off, but once costs exceed $50,000, you lose $1 on the dollar on that write off.

I do hope that's right, lol, as I don't have my books with me at the moment.

[Anonymous]

Thanks, CPAMan-

Got my info from a corp. tax book (didn't look it up now, but I read it a couple of weeks ago), which is why I thought the deductible amount is $5,000 and that rule with the $50,000….

[jeff]

Organizational costs are still $5k/$50k. Startup costs are $10k/$60k.

[Anonymous]

Jeff's correct as usual

[hopefulcpa28]

Thanks, Jeff!!

I couldn't find the update in Becker. They still have both costs listed at $5000/$50,000.

[Author]

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