Puloso Company, a calendar year taxpayer, incurred the following start-up expenditures before the opening of its new health and fitness center. $$\begin{array} { l r }
\text { Rent on commercial space } & \$ 6,000 \
\text { Utilities } & \mathbf { 1 , 4 9 0 } \
\text { Staff hiring and training } & \mathbf { 5 , 2 7 0 } \
\text { Television advertising } & \underline { 1,600 } \
&\underline { \mathbf { \$1 4 , 3 6 0 } }
\end{array}$$ The Puloso Center opened its doors for business on March 21, 2016. How much of the start-up expenditures can Puloso deduct in 2016?

Question

Puloso Company, a calendar year taxpayer, incurred the following start-up expenditures before the opening of its new health and fitness center. $$\begin{array} { l r } 
\text { Rent on commercial space } & \$ 6,000 \
\text { Utilities } & \mathbf { 1 , 4 9 0 } \
\text { Staff hiring and training } & \mathbf { 5 , 2 7 0 } \
\text { Television advertising } & \underline { 1,600 } \
 &\underline { \mathbf { \$1 4 , 3 6 0 } }
\end{array}$$ The Puloso Center opened its doors for business on March 21, 2016. How much of the start-up expenditures can Puloso deduct in 2016?

Quizplus · Accepted Answer

According to the IRS regulations, start-up expenditures under $5,000 may be fully expensed in the year they were incurred.
For expenditures over $5,000, the business is required to amortize the expenses over a period of 15 years starting from the month the business begins operations.
The total start-up expenses incurred by Puloso Center are $14,360, which exceeds the $5,000 threshold, so the expenses cannot be fully expensed in 2016. 
Thus, the only option is to amortize the expenses over 15 years. However, for the partial year (March 21, 2016, to December 31, 2016), Puloso Center can deduct only 9/15 (or 60%) of the expenses.

$14,360 * 0.6 = $8,616

Therefore, Puloso Center can deduct $8,616 of start-up expenditures in 2016.

Puloso Company, a Calendar Year Taxpayer, Incurred the Following Start-Up