JebSim Inc. was organized on June 1 and began business on August 10. JebSim elected a calendar year for tax purposes. The corporation incurred $25,160 of legal and other professional fees attributable to its formation. How much of these costs can JebSim deduct on its first tax return?
A) -0-
B) $699
C) $5,000
D) $5,560

Question

Quizplus · Accepted Answer

JebSim can deduct up to $5,000 of startup costs in its first year, but this amount is reduced by the amount by which total startup costs exceed $50,000. Since JebSim's costs are $25,160, they can deduct the full $5,000. Additionally, the remaining $20,160 is amortized over 180 months, resulting in an additional deduction of $560 for the first year. Thus, the total deduction is $5,560.