Orange Corporation begins business on April 2, 2012.The corporation has startup expenditures of $54,000.If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2012.

Question

Quizplus · Accepted Answer

If Orange Corporation elects § 195, it can deduct up to $5,000 of startup costs in the first year of business. However, since the startup expenditures are $54,000, the excess amount must be amortized over 15 years. Therefore, the total amount that Orange Corporation may deduct in 2012 is $5,000 minus the amortization for the first year, which is $1,350 ($54,000 / 15 years). Thus, the total amount Orange Corporation may deduct in 2012 is $3,650 (i.e. $5,000 - $1,350). The correct answer is (C).

Orange Corporation Begins Business on April 2, 2012