Cleo spent $4,000 on organization costs for her business and $13,000 training staff.If the business is a calendar-year cash-basis business that starts operations on June 1, what is the current year's deduction for these expenses?
A)$17,000
B)$9,311
C)$9,000
D)$611

Question

Quizplus · Accepted Answer

Under the IRS rules, organization costs can be deducted up to $5,000 in the first year, reduced by the amount that exceeds $50,000. Since Cleo's organization costs are $4,000, she can deduct the full amount in the current year. For the training costs, since they are considered start-up costs, the same rule applies. Therefore, she can also deduct $5,000 of the training costs in the current year. The remaining $8,000 of training costs ($13,000 - $5,000) can be amortized over 180 months (15 years). Since the business starts operations in June, she can deduct 7/12 of the annual amortization in the first year. The annual amortization for the $8,000 is $533.33 ($8,000 / 15 years), and 7/12 of that is approximately $311. Therefore, the total deduction for the current year is $4,000 (organization costs) + $5,000 (part of the training costs) + $311 (part of the amortization for the remaining training costs) = $9,311.

Cleo Spent $4,000 on Organization Costs for Her Business and $13,000