A newly formed corporation elected to use a fiscal year ending June 30.On July 17, 2012, the corporation began business and incurred $8,000 of qualified organizational expenses.Assuming that the corporation properly elected to deduct/amortize these costs, what is the amount of organization expenses that it should deduct on its tax return for the fiscal year ending June 30, 2012.

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Quizplus · Accepted Answer

The corporation can deduct up to $5,000 of organizational expenses in the first year of business. The remaining expenses must be amortized over a period of 180 months. Since the corporation began business on July 17, 2012, it only had 2 weeks of the fiscal year to incur organizational expenses. Therefore, it can deduct 2/52 of the $5,000 allowed first-year deduction, which is $192.31. The remaining $7,807.69 must be amortized over 180 months, resulting in an annual amortization of $43.37 ($7,807.69/180). Therefore, the total deduction for organizational expenses on the corporation's tax return for the fiscal year ending June 30, 2012, is $5,200 ($192.31 + $5,007.69).

A Newly Formed Corporation Elected to Use a Fiscal Year