Org expenses – OK I'm mad confused. Both are under 50K…Is this a new change?
Gleim
Question: 32 Corporation R was organized and began active business on January 4, 2015. R incurred the following expenses in connection with creating the business:
Professional fees for issuance of stock $ 4,000
State incorporation fees 2,000
Printing cost for stock certificates 1,500
Broker’s commissions on sale of stock 7,000
Legal fees for drafting the charter 32,000
Expense for temporary directors 5,000
Total $51,500
Electing no immediate expensing, the maximum amount of organizational expense that may be deducted by Corporation R on its 2015 income tax return is
A. $2,600
Answer (A) is correct.
The IRC allows a corporation to elect to amortize its organizational expenses over at least 180 months starting with the month in which it begins business. Organizational expenditures are those incurred incidental to the creation of the corporation. Expenditures connected with issuing or selling stock and with transferring assets to the corporation are excluded. Corporation R’s 2015 amortization deduction (assuming it is a calendar-year corporation) is
State incorporation fees $ 2,000
Legal fees for drafting the charter 32,000
Expense for temporary directors 5,000
Total allowable expenses $39,000
2015 amortization ($39,000 × 12/180 months) $ 2,600
B. $3,433
C. $34,333
D. $51,500
Ninja
Brand New, Inc., was organized and began active business on January 2, Year 2. Brand New incurred the following expenses in connection with creating the business:
State incorporation fees $ 2,000
Legal fees for drafting the charter 6,000
Printing costs for stock certificates 1,500
Professional fees for issuance of stock 4,000
Broker's commission on sale of stock 7,000
Expense for the temporary directors 5,000
Total $25,500
What is the maximum amount of organization expense that Brand New may deduct on its tax return?
A. $2,600
B. $5,000
C. $5,533
D. $13,000
The correct answer is C.
Organization expenses are those expenses connected directly with the creation of the corporation. These include:
Expenses of temporary directors $ 5,000
Fees paid to a state for incorporation 2,000
Accounting and legal fees incident to organization 6,000
Total $13,000
=======
Total organization expense is under $50,000, so the first $5,000 is deductible and the rest is amortized over 180 months.
• $5,000 + (($13,000 − 5,000) × (12 ÷ 180)) = $5,533
Taxpayers may deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of organizational expenditures exceeds $50,000 (not relevant for this question). Any remaining organizational expenditures not deducted are amortized over a 15-year period (180 months).
IRC Section 248(a)
AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)
.