Juliette formed a new business to sell sporting goods this year. The business op
ID: 2378780 • Letter: J
Question
Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including amortization) this year in the following alternative scenarios:
She incurred start-up costs of $2,600.
She incurred start-up costs of $41,250.
She incurred start-up costs of $51,250.
She incurred start-up costs of $61,500.
How would you answer parts (a) through (d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)?
a.She incurred start-up costs of $2,600.
Explanation / Answer
Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of startup costs Juliette can immediately expense (not including amortization) this year in the following alternative scenarios. a. b. c. d. e.
She incurred start-up costs of $2,000.
She incurred start-up costs of $45,000.
She incurred start-up costs of $53,500.
She incurred start-up costs of $63,000.
How would you answer parts (a-d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)?
a. $2,000, computed as follows: Organizational Expenditures Description Amount Explanation (1) Maximum immediate expense $5,000 (2) Total start-up costs $2,000 Given in problem (3) Phase-out threshold 50,000 (4) Immediate expense phase-out Allowable immediate expense $0 (2) (3) Lesser of (2) or [(1) $2,000 minus (4)]
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b. $5,000, computed as follows:
Organizational Expenditures Description Amount Explanation (1) Maximum immediate expense $5,000 (2) Total start-up costs $45,000 Given in problem (3) Phase-out threshold 50,000 (4) Immediate expense phase-out $0 (2) (3) Lesser of (2) or [(1) Allowable immediate expense $5,000 minus (4)] c. $1,500, computed as follows: Organizational Expenditures Description Amount Explanation (1) Maximum immediate expense $5,000 (2) Total start-up costs $53,500 Given in problem (3) Phase-out threshold 50,000 (4) Immediate expense phase-out $3,500 (2) (3) Lesser of (2) or [(1) Allowable immediate expense $1,500 minus (4)] d. $0, computed as follows:
Organizational Expenditures Description Amount Explanation (1) Maximum immediate expense $5,000 (2) Total start-up costs $60,000 Given in problem (3) Phase-out threshold 50,000 (4) Immediate expense phase-out $10,000 (2) (3) Lesser of (2) or [(1) minus (4)] (limited to Allowable immediate expense $0 $0) e. The answers would be the same if these were organizational expenditures instead of start-up costs.
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