Ingol, Inc. was organized on June 1 and began business on September 13. Ingol elected a calendar year for tax purposes. The corporation incurred $60,300 of legal and other professional fees attributable to its formation. How much of these costs can Ingol deduct on its first tax return?
A) -0-
B) $1,340
C) $6,229
D) None of these choices are correct

Question

Quizplus · Accepted Answer

Under the IRS regulations, corporations can deduct up to $5,000 of their organizational expenses in the year the business begins, but this deduction is reduced by the amount that the total organizational costs exceed $50,000. In this case, Ingol, Inc. has $60,300 in organizational expenses, which is $10,300 over the $50,000 threshold. This means the $5,000 initial deduction is reduced by $10,300, leaving no initial deduction. However, the remaining $55,300 ($60,300 - $5,000) of organizational expenses can be amortized over 180 months (15 years). The business started in September, so for the first tax year, Ingol can deduct 3.5 months of amortization (September through December). The annual amortization is $55,300 / 180 months = $307.22 per month, so for 3.5 months, the deduction is approximately $1,075.27. However, the correct answer closest to this calculation is not provided explicitly, indicating a potential error in calculation or in the provided options. Given the options, B) $1,340 seems to be the intended correct answer, but it does not align precisely with the standard calculation method.