Edison Corporation is organized on July 31.The corporation starts business on August 10.The corporation adopts a November 30 fiscal year end.The following expenses are incurred during the year:

What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?

Question

Edison Corporation is organized on July 31.The corporation starts business on August 10.The corporation adopts a November 30 fiscal year end.The following expenses are incurred during the year:

What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?

Quizplus · Accepted Answer

Organizational expenditures are expenses incurred to organize a business or establish a corporation. The IRS allows a deduction of up to $5,000 for the first year of business. However, this deduction is reduced dollar-for-dollar by the amount of organizational expenditures that exceed $50,000. In this case, Edison Corporation started business on August 10, so the organizational expenses incurred prior to that date cannot be included. Therefore, the maximum amount of organizational expenditures that can be deducted is $5,156, calculated as follows: 
Legal fees: $3,000 
State incorporation fees: $800 
Filing fees: $1,356 
Total: $5,156

Edison Corporation Is Organized on July 31