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

The maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30 is $5,156. This is calculated as follows:

The total expenses incurred during the year are $16,000. However, since the corporation only operated for a portion of the year (from August 10 to November 30), only a portion of the expenses can be deducted.

The portion of the year that the corporation was operational is 144 days (from August 10 to November 30). The total number of days in the year (including the days before the corporation started operating) is 152 days (from July 31 to November 30).

Therefore, the portion of the expenses that can be deducted is calculated as follows:

$16,000 x (144/152) = $15,094

However, there is a maximum deduction of $5,000 for organizational expenditures. The remaining $10,094 can be amortized over 180 months (15 years), which comes out to $56.08 per month.

Therefore, the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30 is $5,156 ($5,000 + $56.08).

Edison Corporation Is Organized on July 31