Jackie recently retired from the U.S. Coast Guard after 30 years of service. She would like to open a boat shop to operate in her retirement years. Jackie incurs $3,800 of expenses while investigating sites for her shop and while checking out boat franchises. What are the tax effects of the expenses Jackie incurs?
I.If Jackie enters the boat business, she can deduct the costs only by capitalizing them and amortizing them over 180 months.
II.They are not deductible if Jackie does not enter the ski and boat business.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Jackie recently retired from the U.S. Coast Guard after 30 years of service. She would like to open a boat shop to operate in her retirement years. Jackie incurs $3,800 of expenses while investigating sites for her shop and while checking out boat franchises. What are the tax effects of the expenses Jackie incurs?
I.If Jackie enters the boat business, she can deduct the costs only by capitalizing them and amortizing them over 180 months.
II.They are not deductible if Jackie does not enter the ski and boat business.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

The expenses incurred by Jackie while investigating sites for her boat shop and checking out boat franchises are start-up costs. If Jackie decides not to enter the business, the start-up costs are not deductible. Therefore, statement II is correct. If Jackie enters the boat business, she can elect to deduct up to $5,000 of start-up costs in the first year of business, and the remainder must be capitalized and amortized over 180 months. Statement I is incorrect because the $3,800 start-up costs cannot be deducted by capitalizing them and amortizing them over 180 months unless Jackie enters the boat business.

Jackie Recently Retired from the U