Crimson Corp. was organized as a calendar-year corporation in January, Year 1, incurring $51,000 in qualified organizational expenses, and began business in March, Year 1. What is the maximum amount Crimson may deduct for organizational expenditures on its Year 1 corporate tax return?

Question

Business

Deborah Baird

30 April, 11:01

Crimson Corp. was organized as a calendar-year corporation in January, Year 1, incurring $51,000 in qualified organizational expenses, and began business in March, Year 1. What is the maximum amount Crimson may deduct for organizational expenditures on its Year 1 corporate tax return?

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Answers (1)

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Giovanna Parks · Answer 1

Total deductible organization expenses is $ 6,611

Explanation:

Upto $ 5000 in qualifying organization expenses are deductible in the year they are incurred, with the amount reduced by the amount by which total organizational expenses exceed $50,000. With a total of $51,000 Crimson corp could deduct $ 4000.

In addition, the remaining $ 47,000 is amortized over 15 years or 180 months, begining in the period in which the entity commences operations. Since crimson began operaions in March 2016, amortization would be for 10 months (march 2016 - december 2016)

Amoritzation for march 2016 to december 2016 = 10 / 180 * $47,000

= $2611

Total deductible organization expenses = $4,000 + $ 2,611

= $ 6,611