Green Corporation is incorporated on March 1 and begins business on June 1.Green's first tax year ends on October 31,i.e.,a short year.Green incurs the following expenses during the year: $$\begin{array} { | l | l | r | }
\hline { \text { Month } } & { \text { Type } } & \text { Amount } \
\hline \text { February } & \text { Draft charter } & \$ 2,000 \
\cline { 2 - 3 } \text { March } & \text { Stock commission } & 30,000 \
\text { March } & \text { Accounting feesto set up books } & 2,000 \
\cline { 2 - 3 } \text { April } & \text { Temporary director fees } & 2,000 \
\text { December } & \text { Charter modification fee } & 1,000 \
\hline
\end{array}$$ What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?

Question

Green Corporation is incorporated on March 1 and begins business on June 1.Green's first tax year ends on October 31,i.e.,a short year.Green incurs the following expenses during the year: $$\begin{array} { | l | l | r | } 
\hline { \text { Month } } & { \text { Type } } & \text { Amount } \
\hline \text { February } & \text { Draft charter } & \$ 2,000 \
\cline { 2 - 3 } \text { March } & \text { Stock commission } & 30,000 \
\text { March } & \text { Accounting feesto set up books } & 2,000 \
\cline { 2 - 3 } \text { April } & \text { Temporary director fees } & 2,000 \
\text { December } & \text { Charter modification fee } & 1,000 \
\hline
\end{array}$$ What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?

Quizplus · Accepted Answer

Green Corporation can deduct up to $5,000 of organizational expenses in the first year, reduced by the amount by which the total organizational expenses exceed $50,000. The remaining expenses are amortized over 180 months. Here, the total organizational expenses are $6,000 ($2,000 + $2,000 + $2,000), so Green can deduct $5,000 immediately and amortize the remaining $1,000 over 180 months. For the short tax year (5 months), the amortization deduction is $28 ($1,000/180 * 5). Thus, the total deduction is $5,028 ($5,000 + $28).

Green Corporation Is Incorporated on March 1 and Begins Business