Nicole organized a new corporation. The corporation began business on April 1 of

Question

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started:

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started:

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation? What amount of the start-up costs and organizational expenditures may the corporation immediately expense in year 1? What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 (not including the amount it immediately expensed)? (Round intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) What would be the allowable organizational expenditures, including immediate expensing and amortization, if Nicole started a sole proprietorship instead?

Explanation / Answer

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a. The only qualifying organizational expenditure is the $38,000 of attorney fees related to the drafting articles of incorporation. The start-up costs are the wages ($3,800) and rent ($1,900) before business began. Therefore, total start-up costs are $5,700.

b. The corporation may immediately expense $5,000 of the organizational expenditure and $5,000 of the start-up costs because the amount of organizational expenditures is under $50,000 and the amount of start-up costs is under $50,000.

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c. The corporation will deduct amortization expense of $1,647 for organizational expenditures and $35 of amortization for start-up costs, computed as follows:

Start-up costs Description

(1) Maximum immediate expense

(2) Total start-up expenditures

(3) Phase-out threshold

(4) Immediate expense phase-out

(5) Allowable Amount Explanation $ 5,000 $ 5,700 50,000 195(b)(1)(A)(ii) 195(b)(1)(A)(ii) $ 0 (2) (3) $ 5,000 (1) (4) immediate expense

(6) Remaining organizational expenditures

(7) Recovery period in months

(8) Monthly straightline amortization

(9) Teton business months during year 1 Year 1 straight-line amortization for start-up costs

Description (1) Maximum immediate expense

(2) Total organizational expenditures

(3) Phase-out threshold

(4) Immediate expense phase-out

(5) Allowable immediate expense

(6) Remaining organizational expenditures

(7) Recovery period in months

(8) Monthly straightline amortization

(9) Teton business months during year 1 Year 1 straight-line amortization for organizational expenditures $ 700 180 3.89 (2) (5) 15 years 195(b)(1) (B) (6) / (7) 9 April through December $ 35 (8) (9) Organizational expenditures

Amount Explanation $ 5,000 248(a)(1) $ 38,000 Given in problem 50,000 248(a)(1)(B) $ 0 (2) (3) $ 5,000 (1) (4) $ 33,000 (2) (5) 180 15 years 248(a)(2) 183 (6) / (7) 9 $ 1,647 April through December (8) (9)

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d. Organizational expenditures are only authorized for corporations (section 248) and partnerships (section 709). They are not authorized for sole proprietorships. Typically, sole proprietorships do not incur many of the expenses that would qualify as organizational expenditures anyway. (

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