Henry owns a hardware store in Indianapolis. He has decided to expand his business interests and is considering opening a golf store in a neighboring town. He has incurred $12,000 of expenses investigating whether to open the new golf store. In July of the current year he finds the perfect location and opens the golf store on October 1. What amount of the investigation expenses can he deduct in the current year?
A)$- 0 -
B)$600
C)$5,117
D)$5,540
E)$12,000

Question

Quizplus · Accepted Answer

Henry can deduct $5,117 in the current year. The $12,000 of expenses investigating the golf store are considered startup costs, which cannot be fully expensed in the current year. However, Henry can elect to deduct up to $5,000 of startup costs in the current year (with a phaseout threshold of $50,000), and amortize the remaining expenses over 180 months. The deductible amount is reduced by the amount by which the startup costs exceed $50,000, so in this case, the deductible amount is $5,000 - (($12,000 - $50,000)/$10,000)) = $5,117.

Henry Owns a Hardware Store in Indianapolis